ASSURED GUARANTY LTD

Competition in the Company’s industries may adversely affect its financial condition, results of operations, capital, business prospects and share price.

As described in greater detail under Item 1. Business — Insurance — Market Demand and Competition and Item 1. Business — Asset Management — Market Demand and Competition, the Company can face competition in its financial guaranty insurance, life and annuity reinsurance and asset management businesses from other insurance companies, providers of other credit enhancement, or other asset managers which could have an adverse effect on the Company’s financial condition, results of operations, capital, business prospects and share price.

The life and annuity reinsurance market is extremely competitive and expansion of the Company’s life and annuity reinsurance business may be slower than anticipated. While the Company believes that its annuity reinsurance platform provides a compelling market proposition, it may experience difficulties executing its business strategies, including market acceptance of the Assured Life Re platform and obtaining acceptable market rates of return for business opportunities.

The Company’s Asset Management segment primarily consists of its ownership interest in Sound Point, which operates in highly competitive markets. Sound Point competes with many other firms in every aspect of the asset management industry, including raising funds, seeking investments, and hiring and retaining professionals. Sound Point’s ability to increase and retain AUM is directly related to the performance of the assets it manages as measured against market averages and the performance of its competitors. Some of Sound Point’s competitors may have a lower cost of funds and access to funding and other resources that are not available to Sound Point. In addition, some of Sound Point’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Sound Point does. Furthermore, Sound Point may lose investment opportunities if it does not match its competitors’ pricing, terms and structure. The loss of such investment opportunities may limit Sound Point’s ability to grow or cause it to have to shrink the size of its AUM, which could decrease its earnings. If Sound Point matches its competitors’ pricing, terms and structure, it may experience decreased earnings and increased risk of investment losses. If Sound Point is unable to successfully compete, it may result in decreased earnings for Sound Point and increased risk of investment losses in Sound Point funds, which could materially adversely impact the Company’s ownership interest in Sound Point and/or its investment in Sound Point funds and, ultimately, the Company’s financial condition, results of operations, capital, business prospects and share price.

Strategic transactions may not result in the benefits anticipated.

From time to time the Company evaluates potential mergers, acquisitions, divestitures and other strategic opportunities, including transactions involving legacy financial guaranty companies and financial guaranty portfolios, asset managers, life and annuity reinsurers, and other companies, and has executed a number of such transactions in the past. Such transactions may involve some or all of the various risks commonly associated with such strategic transactions, including, among other things: (a) failure to adequately identify and value potential exposures and liabilities associated with a new entity or portfolio; (b) difficulty in estimating the value of a new entity or portfolio; (c) potential diversion of management’s time and attention; (d) exposure to asset quality issues of a new entity or portfolio; (e) difficulty and expense of integrating the operations, systems and personnel of a new entity; (f) difficulty integrating the culture of a new entity; (g) failure to identify legal risks associated with the strategic transaction with an entity or portfolio, (h) failure of a strategic transaction to perform as expected, (i) deployment of financial resources towards certain strategic initiatives may limit the Company’s ability to deploy capital for other strategic initiatives or other purposes, and (j) in the case of acquisitions of a financial guaranty company or portfolio, concentration of insurance exposures, including insurance exposures which may exceed single risk limits, aggregate risk limits, BIG limits and/or non-U.S. dollar exposure limits, due to the addition of the target insurance portfolio. Such strategic transactions related to entities or portfolios may also have unintended consequences on ratings assigned by the rating agencies to the Company or its insurance subsidiaries or on the applicability of laws and regulations to the Company’s existing businesses. These or other factors may cause any past or future strategic transactions relating to financial services entities or portfolios not to result in the benefits to the Company that the Company anticipated when the transaction was agreed. Past or future transactions may also subject the Company to non-monetary consequences that may or may not have been anticipated or fully mitigated at the time of the transaction.

Additionally, if the Company enters into discussions regarding a strategic transaction and a transaction is not consummated, especially if such discussions become known, related portions of the Company’s business may be negatively impacted.

The Company’s investments in Sound Point are subject to the risks of Sound Point’s business that may adversely affect the Company’s financial condition, results of operations, capital, business prospects and share price.

Since July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point, which is subject to the risks of Sound Point’s business. See Item 1. Business — Asset Management. External factors, such as changes in inflation, interest rates, credit markets or segments thereof, geopolitical risk, developments in the global financial markets, general macroeconomic factors, and industry conditions, as well as the financial performance of Sound Point relative to the Company’s expectations at the time of the Sound Point Transaction, could result in an impairment, which could adversely affect the Company’s financial condition, results of operations and share price.

Asset management services are primarily a fee-based business, and Sound Point’s asset management and performance fees are based on the amount of its AUM as well as the performance of those assets. Sound Point’s business operates in highly competitive markets with many other firms in every aspect of the asset management industry. See “– Competition in the Company’s industries may adversely affect its financial condition, results of operations, capital, business prospects and share price.” Industry competition, volatility or declines in the markets in which Sound Point invests as an asset manager, or poor performance of its investments, may negatively affect its AUM and its asset management and performance fees, may deter future investment by third parties in Sound Point’s asset management products, and may result in an impairment to the Company’s ownership interest in Sound Point.

Sound Point is dependent on certain key personnel, including Sound Point’s Managing Partner and Chief Investment Officer, and its future success depends on their continued service. The departure of any of Sound Point’s key personnel for any reason could have a material adverse effect on Sound Point’s business, financial condition or results of operations and, consequently, the Company’s ownership interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.

The asset management business is also subject to legal, regulatory, compliance, accounting, valuation and political risks that differ from those that may affect the Company’s insurance business. Sound Point operates in a highly regulated industry and, as a registered investment adviser, is subject to the provisions of the Investment Advisers Act of 1940, as amended. Sound Point is, from time to time, subject to formal and informal examinations, investigations, inquiries, audits and reviews from numerous regulatory authorities both in response to issues and questions raised in such examinations or investigations and in connection with the changing priorities of the applicable regulatory authorities across the market in general.

Because the Company does not control the business, management or policies of Sound Point, it relies upon Sound Point to make appropriate decisions and operate in a manner consistent with applicable rules and regulations. In turn, Sound Point may rely on third party service providers such as custodians and fund administrators whom they do not control to comply with applicable rules and regulations. Failure of Sound Point or its service providers to comply with applicable rules and regulations could have a material adverse effect on the value of the Company’s ownership interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.

The Company’s interest in Sound Point is subject to the risks normally associated with a noncontrolling interest.

Since the Company holds a noncontrolling interest in Sound Point, it is unable to control the business, management or policies of Sound Point. For example, the Company is not be able to control the timing or amount of distributions from Sound Point and is not involved on a day-to-day basis with Sound Point’s operations or its decision-making or its adoption and implementation of policies and procedures with respect to its investment, reporting, internal control, legal, compliance or risk functions. In most cases, the Company will be bound by the decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point. In the event that the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point have interests, objectives and incentives that differ from those of the Company, there can be no assurance that the decisions they make will be aligned with the interests of the Company. Decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point not in the Company’s interest could have a material adverse effect on the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.

Alternative investments, including allocations of investments to Sound Point and the exclusivity arrangement with Sound Point, may not result in the benefits anticipated, and may expose it to increased credit, interest rate, liquidity, reputational and other risks.

The Company has invested in alternative investments, and may over time increase the proportion of the Company’s assets invested in alternative investments. Alternative investments may be riskier than other investments the Company makes, and may not result in the benefits anticipated at the time of the investment. Alternative investments are generally less liquid than most of the Company’s other investments and so may be difficult to convert to cash or investments that receive more favorable treatment under the capital models to which the Company is subject, and so may increase the risks described under “— Operational Risks — The ability of AGL and its subsidiaries to meet their liquidity needs may be limited.” Although the Company uses what it believes to be excess capital to make alternative investments, measures of required capital can fluctuate and such assets may not be given much, or any, value under the various rating agency, regulatory and internal capital models to which the Company is or may be subject. In addition, the changes in fair value of certain of these assets are reported in results of operations may be more volatile than net investment income earned from fixed maturity securities.

The Company is using Sound Point’s investment knowledge and experience to expand the categories and types of its alternative investments by: (a) allocating capital in Sound Point managed funds, other vehicles and separately managed accounts; (b) redeploying return of capital, gains and dividends from Sound Point managed funds, other vehicles and separately managed accounts in future Sound Point managed funds, other vehicles and separately managed accounts; and (c) having Sound Point serve as AG’s sole alternative credit manager. This expansion of categories and types of investments, allocations to Sound Point and exclusivity arrangement with Sound Point may increase the credit, interest rate and liquidity risk in the Company’s investments and expose the Company to reputational or other risks.

A downgrade of the financial strength or financial enhancement ratings of any of the Company’s insurance or reinsurance subsidiaries may adversely affect its business prospects.

The financial strength and financial enhancement ratings assigned by S&P, Moody’s, KBRA, A.M. Best Company, Inc. and Fitch Ratings, Inc. to the Company’s insurance and reinsurance subsidiaries represent such rating agencies’ opinions of the insurer’s financial strength and ability to meet ongoing obligations to policyholders and cedants in accordance with the terms of the financial guaranties it has issued or the reinsurance agreements it has executed. Issuers, investors, underwriters, ceding companies and others consider the Company’s financial strength or financial enhancement ratings an important factor when deciding whether or not to utilize a financial guaranty or purchase reinsurance from one of the Company’s insurance or reinsurance subsidiaries. The ratings assigned by the rating agencies to the Company’s insurance subsidiaries are subject to review and may be lowered by a rating agency at any time and without notice to the Company. In the event of a downgrade by a rating agency of the financial strength or financial enhancement ratings of one or more of the Company’s subsidiaries, certain beneficiaries may have the right to cancel their credit protection and certain ceding companies may have a right to cancel policies ceded to the Company’s insurance subsidiaries and recapture premium, in each case resulting in the loss of future premium earnings and the reversal of any fair value gains recorded by the Company. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity — Insurance Subsidiaries —Assumed Reinsurance. In addition, any such downgrade may result in the loss of future premium if potential policyholders would receive less benefit from a financial guaranty issued by a lower rated insurance company. Any such downgrade, resulting loss of premium earnings and reversal of fair value gains may impair the Company’s financial condition, results of operation, capital, liquidity, business prospects and/or share price.

The rating agencies have changed their methodologies and criteria from time to time. Factors influencing the rating agencies are beyond management's control and not always known to the Company. In the event of an actual or perceived deterioration in creditworthiness of large risks in the Company’s insurance portfolio, or other large increases in liabilities (including those related to legal proceedings), or a change in a rating agency’s capital model or rating methodology, a rating agency may require the Company to increase the amount of capital it holds to maintain its financial strength and financial enhancement ratings under the rating agencies’ capital adequacy models, or a rating agency may identify an issue that additional capital would not address. The amount of any capital required may be substantial, and may not be available to the Company on favorable terms and conditions or at all, especially if it were known that additional capital was necessary to preserve the Company’s financial strength or financial enhancement ratings. The failure to raise any additional required capital, or successfully address another issue or issues raised by a rating agency, could result in a downgrade of the ratings of the Company’s insurance subsidiaries and thus have an adverse impact on its business, results of operations, financial condition and share price.

The Company periodically assesses the value of each rating assigned to each of its companies and may, as a result of such assessment, request that a rating agency add or drop a rating from certain of its subsidiaries. For example, a Moody’s rating was dropped from AG Re and AGRO in 2015.

The insurance subsidiaries’ financial strength and financial enhancement ratings are an important competitive factor in the financial guaranty insurance and reinsurance markets. If the financial strength or financial enhancement ratings of one or more of the Company’s insurance subsidiaries were reduced below current levels, the Company expects that the number of transactions that would benefit from the Company’s insurance would be reduced and that its premium rates on new business would decrease; consequently, a downgrade by rating agencies could harm the Company’s new insurance business production.

The Assured Life Re Acquisition may negatively impact the Company, including how it is perceived by its investors, regulators, rating agencies or obligors it insures, as well as Assured Life Re’s business relationships.

The Assured Life Re Acquisition represents the Company’s platform dedicated solely to the life and annuity reinsurance business and may involve significant investments by the Company. The Company has engaged in preliminary discussions regarding the Assured Life Re Acquisition with its relevant regulators and with the rating agencies, and, on that basis, does not believe that the Assured Life Re Acquisition will have a negative impact on its regulators’ or rating agencies’ views of Assured Guaranty or cause those regulators or rating agencies to take any actions that would impede the Company's continued pursuit of its current businesses. There can be no assurance, however, that the Assured Life Re Acquisition will not negatively impact the Company or the perception of the Company by its investors, regulators, rating agencies or obligors it insures and/or its business or results of operations.

The Company and Assured Life Re are dependent on the experience and industry knowledge of their respective management personnel and other key employees, including, in the case of Assured Life Re, key life and annuity reinsurance professionals, to execute their business plans. The Company’s success in the life and annuity reinsurance business will depend in part upon the ability of the Company and Assured Life Re to attract, motivate and retain key management personnel and other key employees, including asset-liability management financial professionals and other key life and annuity reinsurance professionals. Uncertainties associated with the Assured Life Re Acquisition may result in the departure of management personnel and other key employees at Assured Life Re or the Company, and Assured Life Re and the Company may have difficulty attracting and motivating management personnel and other key employees

Entering the life and annuity reinsurance business may present integration risks and other risks specific to the life and annuity reinsurance business that could have a negative effect on the Company’s business, results of operations or financial condition.

While the Assured Life Re Acquisition is intended to diversify Assured Guaranty’s earnings, entering this business line, which the Company believes is in line with its risk profile and benefits from its core competencies, may present integration risks as well as new risks that could have a negative effect on the Company's business, results of operations or financial condition.

The Company’s focus on the growth of the life and annuity reinsurance business may divert management’s attention from the Company’s core operations and other priorities resulting in strategic misalignment. Moreover, the use of the Company’s financial resources for the Assured Life Re Acquisition and growth of the life and annuity reinsurance business may limit the Company’s ability to invest in other strategic initiatives or deploy capital for other purposes.

Successfully integrating Assured Life Re into the Company’s existing operations involves challenges such as integrating or implementing new complex systems, preparing Assured Life Re’s financial statements in accordance with GAAP and in compliance with the SEC’s accounting regulations, consolidating financial statements, aligning organizational cultures, and retaining key personnel. Failure to effectively manage any of the integration processes could disrupt the Company’s operations and negatively impact its financial performance.

The Company’s due diligence process may not have identified all potential liabilities and risks associated with the Assured Life Re Acquisition. This could result in unexpected financial and operational challenges post-acquisition, including regulatory non-compliance, undisclosed liabilities, or operational inefficiencies.

Assured Life Re’s life and annuity reinsurance business is also subject to legal, regulatory and compliance risks that differ from those involved in the Company’s current business of providing credit protection products. Failure to comply with applicable laws or regulations can result in legal penalties, regulatory actions, or reputational damage, which could have a material adverse effect on the Company’s business. In addition, in recent years, annuity and reinsurance products have come under increased regulatory scrutiny reflecting concerns over financial stability, consumer protection, and the evolving complexity of insurance-linked financial products, potentially leading to increased compliance costs, limitations on forms of product offerings, and higher capital and solvency requirements, which could negatively impact the business and financial performance of Assured Life Re.