Forward Looking Statements

This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events of Assured Guaranty Ltd. ("AGL" and, together with its subsidiaries, "Assured Guaranty" or the "Company"). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance.

Any or all of Assured Guaranty's forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect. Assured Guaranty's actual results may vary materially. Among factors that could cause actual results to differ materially are:

† rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of Assured Guaranty or any of its subsidiaries and/or of transactions that Assured Guaranty's subsidiaries have insured, all of which have occurred in the past;

† developments in the world's financial and capital markets that adversely affect issuers' payment rates, Assured Guaranty's loss experience, its access to capital, its unrealized (losses) gains on derivative financial instruments or its investment returns;

† changes in the world's credit markets, segments thereof or general economic conditions;

† the impact of rating agency action with respect to sovereign debt and the resulting effect on the value of securities in the Company's investment portfolio and collateral posted by and to the Company;

† more severe or frequent losses implicating the adequacy of Assured Guaranty's expected loss estimates;

† the impact of market volatility on the mark-to-market of Assured Guaranty's contracts written in credit default swap form;

† reduction in the amount of insurance opportunities available to Assured Guaranty;

† deterioration in the financial condition of Assured Guaranty's reinsurers, the amount and timing of reinsurance recoverables actually received and the risk that reinsurers may dispute amounts owed to Assured Guaranty under its reinsurance agreements;

† the possibility that Assured Guaranty will not realize insurance loss recoveries or damages expected from originators, sellers, sponsors, underwriters or servicers of residential mortgage-backed securities transactions;

† the possibility that budget shortfalls or other factors will result in credit losses or impairments on obligations of state and local governments that the Company insures or reinsures;

† increased competition;

†          changes in applicable accounting policies or practices;



†          changes in applicable laws or regulations, including insurance and
tax laws;



†          other governmental actions;



†          difficulties with the execution of the Assured Guaranty's business
strategy;

† contract cancellations;

† Assured Guaranty's dependence on customers;

† loss of key personnel;

†

†          adverse technological developments;



†          the effects of mergers, acquisitions and divestitures;



†          natural or man-made catastrophes;



†          other risks and uncertainties that have not been identified at this
time;

† management's response to these factors; and

† other risk factors identified in Assured Guaranty's filings with the U.S. Securities and Exchange Commission (the "SEC").

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company's periodic reports filed with the SEC.

If one or more of these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity.

For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Convention

Unless otherwise noted, ratings on Assured Guaranty's insured portfolio reflect its internal rating. Although Assured Guaranty's rating scale is similar to that used by the nationally recognized statistical rating organizations, the ratings may not be the same as ratings assigned by any such rating agency. For example the super senior category, which is not generally used by rating agencies, is used by Assured Guaranty in instances where its AAA-rated exposure has additional credit enhancement due to either (1) the existence of another security rated AAA that is subordinated to Assured Guaranty's exposure or
(2) Assured Guaranty's exposure benefitting from a different form of credit enhancement that would pay any claims first in the event that any of the exposures incurs a loss, and such credit enhancement, in management's opinion, causes Assured Guaranty's attachment point to be materially above the AAA attachment point.

Introduction

AGL provides, through its operating subsidiaries, credit protection products to the United States ("U.S.") and international public finance, infrastructure and structured finance markets. The Company has applied its credit underwriting judgment, risk management skills and capital markets experience to offer insurance that protect holders of debt instruments and other monetary obligations from defaults in scheduled payments, including scheduled interest and principal payments. Financial guaranty contracts provide an unconditional and irrevocable guaranty that protects the holder of a financial obligation against non-payment of principal and interest when due.

Public finance obligations insured or assumed through reinsurance by the Company consist primarily of general obligation bonds supported by the issuers' taxing powers, tax-supported bonds and revenue bonds and other obligations of states, their political subdivisions and other municipal issuers supported by the issuers' or obligors' covenant to impose and collect fees and charges for public services or specific projects. Public finance obligations include obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including government office buildings, toll roads, health care facilities and utilities.

Structured finance obligations insured or assumed through reinsurance by the Company are backed by pools of assets such as residential mortgage loans, consumer or trade receivables, securities or other assets having an ascertainable cash flow or market value and generally issued by special purpose entities.

Debt obligations guaranteed by the Company's insurance subsidiaries are generally awarded ratings that are the same rating as the financial strength rating of the Assured Guaranty subsidiary that has guaranteed that obligation. Investors in products insured by Assured Guaranty Municipal Corp. ("AGM") or Assured Guaranty Corp. ("AGC") frequently rely on rating agency ratings. Therefore, low financial strength ratings or uncertainty over AGM's or AGC's abilities to maintain their financial strength ratings would have a negative impact on the demand for their insurance product.

A downgrade by Moody's Investor Services, Inc. ("Moody's") or Standard and Poor's Ratings Services ("S&P") of the financial strength ratings of the Company's insurance subsidiaries may have a negative impact on the Company's liquidity. A downgrade may trigger (1) increased claims on some of the Company's insurance policies, in certain cases, on a more accelerated basis than when the original transaction closed; or (2) termination payments or collateral posting under credit default swap ("CDS") contracts. A downgrade in the financial strength ratings may also enable beneficiaries of the Company's policies to cancel the credit protection offered by the Company and cease paying premium. A downgrade may also enable primary insurance companies that had ceded business to the Company to recapture a significant portion of its in-force financial guaranty reinsurance business. On March 20, 2012, Moody's placed the ratings of AGL and its subsidiaries, including the financial strength ratings of the insurance subsidiaries, on review for possible downgrade.

Available Information

The Company maintains an Internet web site at www.assuredguaranty.com. The Company makes available, free of charge, on its web site (at www.assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd/sec-filings) the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (at www.assuredguaranty.com/governance) links to the Company's Corporate Governance Guidelines, its Code of Conduct and the charters for its Board Committees.

The Company routinely posts important information for investors on its web site (at www.assuredguaranty.com/about-us/company-statements). The Company uses this web site as a means of disclosing material, non-public information and for complying with its disclosure obligations under SEC Regulation FD. Accordingly, investors should monitor the Investor Information portion of the Company's web site, in addition to following the Company's press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company's web site is not incorporated by reference into, and is not a part of, this report.

Executive Summary

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and accompanying notes which appear elsewhere in this 10-Q. It contains forward looking statements that involve risks and uncertainties. Please see "Forward Looking Statements" for more information. The Company's actual results could differ materially from those anticipated in these forward looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-Q, particularly under the headings "Forward Looking Statements."

This executive summary of management's discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Quarterly Report. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to Assured Guaranty's Annual Report on Form 10-K.

Economic Environment

The Company continued to be the most active provider of financial guaranty insurance in the three months ended March 31, 2012 ("First Quarter 2012") as a result of its financial strength and its ability to maintain its financial strength ratings in the double-A ratings category throughout the financial crisis. All of the Company's pre-2007 financial guaranty competitors, except AGM, which the Company acquired in 2009, have had their financial strength ratings downgraded by rating agencies to below investment grade levels or are no longer rated, rendering them unable to underwrite new business. Business conditions have been difficult for the entire financial guaranty insurance industry since mid-2007 and the Company continues to face challenges in maintaining its market penetration today.

While the overall economic environment in the U.S. in First Quarter 2012 was stronger than in the three months ended March 31, 2011 ("First Quarter 2011"), housing delinquency trends have not improved, unemployment rates have declined but remain relatively high, crude oil prices rose by 9.3%, and the ultimate credit experience on U.S. residential mortgage-backed securities ("RMBS") transactions underwritten from the end of 2004 through 2008 by many financial institutions, including the financial guaranty insurers, remains poor. While hiring trends have improved, it may take years to return to pre-recession levels, which may adversely affect Assured Guaranty's loss experience on RMBS.

The U.S. municipal bond market, which has been the Company's principal market since 2007, has also changed significantly during the past three years. Municipal credits have experienced increased budgetary stress. In addition, many states and towns have significant unfunded pension and retiree health care liabilities that create additional budgetary stress. Although total state tax collections as well as sales tax and personal income tax collections grew in First Quarter 2012, overall tax collections are still weak compared with recent historical standards. In First Quarter 2012, new issuance volume in the U.S. and international public finance sectors increased but did not return to historical levels, and the market for financial guaranty insurance was hampered by ratings uncertainty and municipal rating recalibrations. A contributing factor to the trend of low issuance volume has been a reduction in capital spending due to municipal budget constraints and fiscal austerity, resulting in less need for increased debt, and a reluctance to increase taxes to service principal and interest costs under new debt.

In the international arena, troubled Eurozone countries are a source of stress in global equity and debt markets following the execution of the debt restructuring in Greece. Debt costs in Portugal, Spain and Italy remain elevated, and successful execution of structural reforms is necessary to avert further fiscal stress in those and other EU countries. The Company's exposure to Greece and other troubled Eurozone countries is described in "-Results of Operations-Consolidated Results of Operations-Losses in the Insured Portfolio" and "-Insured Portfolio-Selected European Exposures."

The current economic environment has had a significant negative impact on the demand by investors for financial guaranty policies, and it is uncertain when or if demand for financial guaranties will return to their pre-economic crisis level. In particular, there has been limited new issue activity and also limited demand for financial guaranties in First Quarter 2012 in both the global structured finance and international infrastructure finance markets. As a result, near-term opportunities for financial guaranties in these two sectors are largely in secondary markets. The Company expects that global structured finance and international infrastructure opportunities will increase in the future as the global economy recovers, issuers return to the capital markets for financings and institutional investors again utilize financial guaranties, although the Company cannot assure that this will occur. Financial guaranties had been an essential component of capital market financings for international infrastructure projects and asset-based lending, such as for auto loans and leases and equipment financings, but these financings have been largely financed in recent years with relatively short-term bank loans.

In First Quarter 2012, the Company continued to be affected by a negative perception of financial guaranty insurers arising from the financial distress suffered by other companies in the industry during the financial crisis. S&P announced in January 2011 that it would be revising its bond insurance rating criteria and it was not until November 2011 that AGM and AGC were assigned financial strength ratings of AA- (Stable Outlook). AGM and AGC's financial strength ratings have been rated Aa3 (Negative Outlook) by Moody's since December 2009. However, on March 20, 2012, Moody's placed the ratings of AGL and all of its subsidiaries, including those of insurers AGM, AGC, Assured Guaranty Re Ltd. ("AG Re") and Assured Guaranty (Europe) Ltd. ("AGE"), on review for possible downgrade. The negative perception of financial guaranty insurers arising from the financial distress suffered by other companies in the industry during the financial

crisis and the rating uncertainty of the Company's insurance subsidiaries resulted in lower demand for the Company's insurance product.

The demand for the Company's insurance has also been negatively impacted by its credit spread. The spread is a reflection of the risk that investors perceive with the Company. The higher the spread, the lower the benefit of the Company's guaranty. If investors view the Company as being only marginally less risky, or perhaps even as risky, as the uninsured security, the coupon on a security insured by the Company may not be much lower, or may be the same as, an uninsured security offered by the same issuer. Accordingly, issuers may be unwilling to pay a premium for the Company to insure their securities if the insurance does not lower the costs of issuance. While AGC and AGM credit spreads declined significantly in First Quarter 2012 compared with December 31, 2011, they remained high compared to pre-2007 credit spreads.

Financial Performance of Assured Guaranty



                               Financial Results



                                                              First Quarter
                                                   2012           2011          Change
                                                    (dollars in millions, except per
                                                             share amounts)
Selected income statement data
Net earned premiums                             $     193.7    $     254.0    $     (60.3 )
Net investment income                                  97.8           97.4            0.4
Realized gains (losses) and other
settlements on credit derivatives                     (56.9 )         35.4          (92.3 )
Net unrealized gains (losses) on credit
derivatives                                          (633.8 )       (271.6 )       (362.2 )
Fair value gains (losses) on financial
guaranty variable interest entities                   (36.6 )        119.6         (156.2 )
Loss and loss adjustment expenses                    (246.8 )         25.5         (272.3 )
Other operating expenses                              (61.3 )        (62.8 )          1.5
Net income (loss).                                   (483.0 )        139.3         (622.3 )
Diluted earnings per share                      $     (2.65 )  $      0.74    $     (3.39 )
Selected non-GAAP measures(1)
Operating income                                $      71.2    $     247.4    $    (176.2 )
Operating income per share                             0.38           1.32          (0.94 )
Present value of new business production
("PVP")                                                56.3           52.5            3.8

Credit spreads of underlying CDS obligations and consolidated financial guaranty variable interest entities ("FG VIEs"), and the Company's own credit spreads, have had a significant effect on reported net income. In First Quarter 2012, the Company reported net loss of $483.0 million primarily as a result of the tightening of AGC credit spreads (which have the effect of increasing unrealized losses on credit derivatives), loss and loss adjustment expenses ("LAE") due primarily to the Company's insured Greek sovereign debt of $189.3 million, and fair value losses on consolidated FG VIEs. In First Quarter 2011, the Company reported net income of $139.3 million, which included unrealized losses on credit derivatives due to tightening of the Company's own credit spreads, fair value gains related to FG VIEs and the benefit related to the Bank of America Agreement. Non-GAAP operating income, which excludes, among other items, fair value adjustments considered to be non-economic, was $71.2 million in First Quarter 2012 compared with $247.4 million in First Quarter 2011. The decline in operating income was primarily attributable to loss expense related to the Company's exposure to insured Greek sovereign debt.

The decrease in net earned premiums was consistent with the expected amortization of deferred premium revenue and was offset in part by an increase in refundings and accelerations. Net investment income was relatively flat compared with First Quarter 2011. Realized gains (losses) and other settlements on credit derivatives decreased as expected as the book of business amortizes and also due to an increase in claim payments. Loss and LAE in First Quarter 2012 reflects an increase in Greek sovereign debt losses, while First Quarter 2011 benefited significantly from increased estimates of recoveries for breaches of representations and warranties ("R&W") which largely offset increases in projected losses on the U.S. RMBS portfolio. Net economic

loss development measures changes in the ultimate expected losses of the Company and was $211.8 million in First Quarter 2012 driven primarily by increases in projected losses on insured Greek sovereign debt and other structured finance obligations.

Key Business Strategies

The Company has been focused on three principal strategies: loss mitigation, including the pursuit of recoveries for R&W breaches and of servicing improvements; strengthening its capital position; and new business development.

Loss Mitigation

On May 8, 2012, Assured Guaranty reached a settlement with Deutsche Bank AG and certain of its affiliates (collectively, "Deutsche Bank"), resolving claims related to certain RMBS transactions issued, underwritten or sponsored by Deutsche Bank that were insured by Assured Guaranty under financial guaranty insurance policies and to certain RMBS exposures in re-securitization transactions as to which Assured Guaranty provides credit protection through CDS.

Assured Guaranty received a cash payment of $165.6 million from Deutsche Bank upon signing of the agreement (the "Deutsche Bank Agreement"), a portion of which will partially reimburse Assured Guaranty for past losses on certain transactions. Assured Guaranty and Deutsche Bank have also entered into loss sharing arrangements covering future RMBS related losses, which are described below. Under the Deutsche Bank Agreement, Deutsche Bank AG will place approximately $282.7 million of eligible assets in trust in order to collateralize the obligations of a reinsurance affiliate under the loss-sharing arrangements, and the Deutsche Bank reinsurance affiliate may post additional collateral in the future to satisfy rating agency requirements.

The settlement includes eight RMBS transactions ("Covered Transactions") that Assured Guaranty has insured through financial guaranty insurance policies. The Covered Transactions are backed by first lien and second lien mortgage loans. Under the Deutsche Bank Agreement, the Deutsche Bank reinsurance affiliate will reimburse 80% of Assured Guaranty's future losses on the Covered Transactions until Assured Guaranty's aggregate losses (including those to date that are partially reimbursed by the $165.6 million cash payment) reach $318.8 million. Assured Guaranty currently projects that the Covered Transactions will not generate aggregate losses in excess of $318.8 million. In the event aggregate losses exceed $388.8 million, the reinsurance affiliate is required to resume reimbursement at the rate of 85% of Assured Guaranty's losses in excess of $388.8 million until such losses reach $600.0 million. The Covered Transactions represented $581 million of gross par outstanding as of April 25, 2012.

Certain uninsured tranches ("Uninsured Tranches") of three of the Covered Transactions are included as collateral in RMBS re- securitization transactions as to which Assured Guaranty provides credit protection through CDS. Under the Deutsche Bank Agreement, the Deutsche Bank reinsurance affiliate will reimburse losses on the CDS in an amount equal to 60% of losses in these Uninsured Tranches until the aggregate losses in the Uninsured Tranches reach $141.1 million. Assured Guaranty currently projects that the Uninsured Tranches will not generate losses in excess of $141.1 million. In the event aggregate losses exceed $161.1 million, reimbursement resumes at the rate of 60% until the aggregate losses reach $185.1 million. The reinsurance affiliate is required to reimburse any losses in excess of $185.1 million at the rate of 100% until the aggregate losses reach $247.8 million. The Uninsured Tranches represent $337 million of gross par outstanding as of April 25, 2012.

Assured Guaranty had filed complaints against Deutsche Bank on two of the Covered Transactions. As part of the settlement, Assured Guaranty has settled its litigation against Deutsche Bank on those two Covered Transactions and on one other RMBS transaction. See Note 4 of the Financial Statements, Financial Guaranty Insurance Contracts, "Recovery Litigation-RMBS Transactions" for information about the RMBS transactions subject to the settlement.

The terms of the Deutsche Bank settlement were largely reflected in Assured Guaranty's 2011 financial guaranty insurance net expected losses.

Except for the Uninsured Tranches, the settlement does not include Assured Guaranty's CDS with Deutsche Bank. The parties have agreed to continue efforts to resolve CDS-related claims.

Net expected loss to be paid for both financial guaranty insurance and credit derivatives increased $211.8 million in First Quarter 2012. The Company continued its risk remediation strategies which lowered losses and also created additional rating agency capital. The following are examples of the strategies employed by the Company.

The Company is continuing to purchase attractively priced below-investment-grade ("BIG") obligations that it had insured in order to mitigate losses, which . . .