Assured Guaranty (AGO) DEF 14ADefinitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No. )

Assured Guaranty Ltd.

It is with great pleasure that we invite you to our 2022 Annual General Meeting of shareholders on Wednesday, May 4, 2022, at 6 Bevis Marks in London. Whether or not you plan to attend the meeting, please vote your shares; your vote is important to us.

More than five years of difficult and complex negotiation and litigation over defaulted insured Puerto Rico exposures finally bore fruit in 2021. We completed two plan support agreements with the Federal Oversight Management Board for Puerto Rico and other important stakeholders in 2021, covering 74% of the Puerto Rico debt outstanding on December 31, 2021. This led directly to the resolution just last week of a significant portion of our insurance exposure to Puerto Rico -- approximately $1.3 billion of net par outstanding at December 31, 2021. With the resolution of our Puerto Rico exposures so much more likely when we closed our books for the year, we were able to take a benefit against our expected losses related to Puerto Rico that was the primary driver of the $204 million economic benefit against our expected losses in the public finance sector.

Similarly, more than a decade of hard work with servicers in our legacy residential mortgage backed securities (RMBS) portfolio, encouraging the servicers to keep borrowers in their homes through modifications and forbearances and to maintain liens on the homes, continued to pay off in 2021 as ongoing home price appreciation improved expected recoveries and performance of our insured RMBS portfolio, which, over the year, resulted in an economic benefit against our expected losses of $100 million.

We enjoyed a very successful year in our primary business, financial guaranty insurance. In our primary market for that product, U.S. municipal finance, we insured 5.0% out of the entire U.S. new issue municipal market, up substantially from 4.4% in 2020, and the most since 2011. With a more than 60% share of insured par issued, we led the municipal bond insurance industry to its highest market penetration in a dozen years. This helped us to achieve in 2021 gross written premium of $377 million and new business production in the insurance segment, a non-GAAP financial measure we refer to as PVP*, of $361 million.

We continued to make important progress in managing our capital by issuing $900 million of new public debt and retiring higher interest debt, and by returning $562 million to our shareholders through share repurchases and dividends.

In our asset management business, we issued $2.6 billion in new collateralized loan obligations (CLOs), which contributed significantly to the $3.0 billion of inflows of third-party assets under management, which we refer to as AUM, during the year — above our target. We also take advantage of the knowledge in our asset management business to enhance our returns on a portion of our insurance subsidiaries' investment assets. In 2021, we had equity in earnings of investees from funds managed by our asset management business of $80 million, nearly double the $42 million in 2020.

These and the other achievements highlighted in this proxy statement helped us to build substantial shareholder value during 2021 by all of the measures we use. By year-end 2021, our shareholders’ equity attributable to Assured Guaranty Ltd. per share, adjusted operating shareholder’s equity* per share and adjusted book value* per share all reached record levels, at $93.19, $88.73 and $130.67, respectively. Our share price rose 59.4% from $31.49 at year-end 2020 to $50.20 at year-end 2021.

We accomplished all of this while successfully navigating COVID-19 restrictions and taking important steps in environmental and social responsibility areas described further within this proxy statement. We could not be prouder of all that our employees accomplished in 2021.

Sincerely,

REGISTERED SHAREHOLDERS WHO HOLD OUR SHARES DIRECTLY MAY VOTE UP UNTIL 12:00 NOON EASTERN DAYLIGHT TIME ON MAY 3, 2022. BENEFICIAL SHAREHOLDERS MUST SUBMIT THEIR VOTING INSTRUCTIONS SO THAT THEIR BROKERS WILL BE ABLE TO VOTE BY 11:59 P.M. EASTERN DAYLIGHT TIME ON MAY 2, 2022. EMPLOYEE SHAREHOLDERS WHO PARTICIPATE IN THE ASSURED GUARANTY EMPLOYEE STOCK PURCHASE PLAN MAY VOTE UP UNTIL 11:59 P.M. EASTERN DAYLIGHT SAVINGS TIME ON APRIL 29, 2022.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL GENERAL MEETING IN PERSON OR BY PROXY, AND REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE VOTE AS PROMPTLY AS POSSIBLE VIA THE INTERNET OR BY TELEPHONE. ALTERNATIVELY, IF YOU HAVE REQUESTED WRITTEN PROXY MATERIALS, PLEASE SIGN, DATE AND RETURN THE PROXY CARD IN THE RETURN ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. FOR FURTHER INFORMATION CONCERNING THE INDIVIDUALS NOMINATED AS DIRECTORS, THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT.

Secretary

 

This summary highlights information contained elsewhere in this proxy statement and does not contain all of the information that you should consider before voting. For more complete information about the following topics, please review the complete proxy statement and the Annual Report on Form 10-K of Assured Guaranty Ltd. (which we refer to as AGL, we, us or our; we use Assured Guaranty, our Company or the Company to refer to AGL together with its subsidiaries).

We intend to begin distribution of the Notice Regarding the Availability of Proxy Materials to shareholders on or about March 23, 2022.

ANNUAL GENERAL MEETING OF SHAREHOLDERS

We will also transact any other business that may properly come before the meeting.

If we postpone or change the date, time or location of our Annual General Meeting as a result of travel or gathering restrictions related to COVID-19, we will post the revised meeting information on our website at www.assuredguaranty.com/annualmeeting as soon as possible after changing the date, time and place for the postponed meeting. We will also promptly issue a press release that we will make available on our website at www.assuredguaranty.com/annualmeeting and file with the SEC as definitive additional proxy material. Therefore, prior to and on the date of the Annual General Meeting, please visit our website or the SEC’s website (www.sec.gov) to determine if there has been any change to the date, time or location of our Annual General Meeting. If you wish to receive a physical copy of any such press release, please contact our Secretary at generalcounsel@agltd.com or (441) 279-5725.

This proxy statement makes a number of references to our website. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this proxy statement.

Our Board of Directors maintains strong corporate governance policies.

The full text of our Corporate Governance Guidelines, our Global Code of Ethics and each Board committee charter, are available on our website at www.assuredguaranty.com/governance. In addition, you may request copies of the Corporate Governance Guidelines, the Global Code of Ethics and the committee charters by contacting our Secretary via:

Our Board of Directors oversees our business and monitors the performance of management. The directors keep themselves up-to-date on our Company by discussing matters with Mr. Frederico, who is our Chief Executive Officer (and whom we refer to as our CEO), other key executives and our principal external advisors, such as outside auditors, outside legal counsel, investment bankers and other consultants, by reading the reports and other materials that we send them regularly and by participating in Board and committee meetings.

The Board usually meets four times per year in regularly scheduled meetings, but will meet more often if necessary. During 2021, the Board met four times. All but one of our directors, Michelle McCloskey, attended at least 75% of the aggregate number of meetings of the Board and committees of the Board of which they were a member held while they were in office during the year ended December 31, 2021. Ms. McCloskey was elected to the Board effective May 5, 2021, and so was eligible to attend only two of the sets of Board and committee meetings held in 2021. She missed only one set of Board and committee meetings, due to illness.

DIRECTOR INDEPENDENCE

In February 2022, our Board determined that, other than Mr. Frederico, all of our directors are independent under the listing standards of the NYSE. These independent directors constitute substantially more than a majority of our Board. In making its determination of independence, the Board applied its Categorical Standards for Director Independence and determined that no other material relationships existed between our Company and these directors. A copy of our Categorical Standards for Director Independence is available as part of our Corporate Governance Guidelines, which are available on our website at www.assuredguaranty.com/governance. In addition, as part of the independence determination, our Board monitors the independence of Audit and Compensation Committee members under rules of the SEC and NYSE listing standards that are applicable to members of the Audit Committee and Compensation Committee.

As part of its independence determinations, the Board considered the other directorships held by the independent directors and determined that none of these directorships constituted a material relationship with our Company.

DIRECTOR EXECUTIVE SESSIONS

The independent directors meet at regularly scheduled executive sessions without the participation of management. The Chair of the Board is the presiding director for executive sessions of independent directors.

HOW ARE DIRECTORS NOMINATED?

In accordance with its charter, the Nominating and Governance Committee identifies potential nominees for directors from various sources. The Nominating and Governance Committee:

The Nominating and Governance Committee has the authority to retain search firms to be used to identify director candidates and to approve the search firm’s fees and other retention terms. The Nominating and Governance Committee may also retain other advisors.

We believe that diversity among members of the Board is an important consideration and is critical to the Board’s ability to perform its duties and various roles. Accordingly, in recommending nominees, the Board considers a wide range of individual perspectives in addition to diversity in professional experience and training. In 2021, the Board amended our Corporate Governance Guidelines to specify that the Nominating and Governance Committee will include, and will direct any director search firm that may be retained to

identify nominees for director, to include highly qualified candidates who reflect a variety of backgrounds (including in respect of gender, race or ethnicity) in the pool of potential candidates being considered.

Our Corporate Governance Guidelines address diversity of experience, requiring the Nominating and Governance Committee to review annually the skills and attributes of Board members within the context of the current make-up of the full Board. The guidelines also provide that Board members should have individual backgrounds that, when combined, provide a portfolio of experience and knowledge that will serve our governance and strategic needs. The Nominating and Governance Committee will consider Board candidates on the basis of a range of criteria, including broad-based business knowledge and contacts, prominence and sound reputation in their fields as well as having a global business perspective and commitment to good corporate citizenship. Our Corporate Governance Guidelines specify that directors should represent all shareholders and not any special interest group or constituency. The guidelines additionally specify that directors should be able and prepared to provide wise and thoughtful counsel to top management on the full range of potential issues facing us. Directors must possess the highest personal and professional integrity. Directors must have the time necessary to fully meet their duty of due care to the shareholders and be willing to commit to service over the long term.

The Nominating and Governance Committee annually reviews its own performance. In connection with such evaluation, the Nominating and Governance Committee assesses whether it effectively nominates candidates for director in accordance with the above described standards specified by the Corporate Governance Guidelines.

Our Board is currently composed of individuals from different disciplines, including lawyers, accountants and individuals who have industry, finance, executive and international experience, and is composed of both men and women of different races and ethnicities, and citizens of the United States, the United Kingdom and Japan. See each nominee’s biography appearing later in this proxy statement for a description of the specific experience that each such individual brings to our Board.

The Nominating and Governance Committee will consider a shareholder’s recommendation for director but has no obligation to recommend such candidate for nomination by the Board of Directors. Assuming that appropriate biographical and background material is provided for candidates recommended by shareholders, the Nominating and Governance Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. If a shareholder has a suggestion for a candidate for election, the shareholder should send it to: Secretary, Assured Guaranty Ltd., 30 Woodbourne Avenue, Hamilton HM 08, Bermuda. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Nominating and Governance Committee recommends, and the Board approves, such person.

If a shareholder desires to nominate a person for election as director at an Annual General Meeting, that shareholder must comply with Article 14 of AGL’s Bye-Laws, which requires notice no later than 90 days prior to the anniversary date of the immediately preceding Annual General Meeting. This time period has passed with respect to the 2022 Annual General Meeting. With respect to the 2023 Annual General Meeting, AGL must receive such written notice on or prior to February 3, 2023. Such notice must describe the nomination in sufficient detail to be summarized on the agenda for the meeting and must set forth:

COMMITTEES OF THE BOARD

The Board of Directors has established an Audit Committee, a Compensation Committee, an Environmental and Social Responsibility Committee, a Finance Committee, a Nominating and Governance Committee, a Risk Oversight Committee and an Executive Committee. All of the Board committees other than the Executive Committee are composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards and as applied by the Board. Mr. O'Kane, who currently serves as chair of the Finance Committee and a member of the Audit and Nominating and Governance Committees, will retire upon the completion of his 2021-2022 term.

The Audit Committee provides oversight of the integrity of our Company’s financial statements and financial reporting process, our compliance with legal and regulatory requirements (including cybersecurity and data privacy requirements), the system of internal controls, the audit process, the performance of our internal audit program and the performance, qualification and independence of the independent auditor. The Audit Committee is also responsible for the oversight of Company risks related to (i) financial reporting, accounting policies and reserving, (ii) legal, regulatory and compliance matters, (iii) information technology, which we refer to as IT, (including cybersecurity and data privacy), (iv) workouts, emerging events, and counterparties, (v) outsourcing and people, and (vi) business continuity planning.

The Audit Committee is composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards and as applied by the Board.

The Compensation Committee has responsibility for evaluating the performance of our CEO and our senior leadership team and determining executive compensation in conjunction with the independent directors. The Compensation Committee also works with the Nominating and Governance Committee and our CEO on succession planning. The Compensation Committee is also responsible for the oversight of Company risks related to people, succession planning and compensation.

The Compensation Committee is composed entirely of directors who are independent of our Company and management, as defined by the NYSE listing standards and as applied by the Board.

The Executive Committee was established to have, and to exercise, certain of the powers and authority of the Board in the management of the business and affairs of our Company between regularly scheduled meetings of the Board when, in the opinion of a quorum of the Executive Committee, a matter should not be postponed to the next scheduled meeting of the Board. The Executive Committee’s authority to act is limited by our Company’s Bye-Laws, rules of the NYSE and applicable law and regulation and the Committee’s charter.

HOW ARE DIRECTORS COMPENSATED?

Our independent directors receive an annual retainer of $265,000 per year. We pay $145,000 of the retainer in restricted stock and $120,000 of the retainer in cash. A director also may elect to receive any or all of the cash portion of their annual retainer (plus the additional cash amounts described below) in restricted stock.

The restricted stock vests on the day immediately prior to the next Annual General Meeting following the grant of the stock. However, if, prior to such vesting date, either (i) a change in control (as defined in the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan, as amended) of Assured Guaranty Ltd. occurs before the director terminates service on the Board or (ii) the director terminates service on the Board as a result of such director’s death or disability, then the restricted stock will vest on the date of such change in control or the date of the director’s termination of service, whichever is applicable. Grants of restricted stock receive cash dividends and have voting rights; the cash dividends accrue during the vesting period and are paid upon vesting.

Our share ownership guidelines require that, before being permitted to dispose of any shares acquired as compensation from our Company, each independent director own Common Shares with a market value of at least $600,000, which amount is five times the maximum cash portion of the annual director retainer (exclusive of committee fees). Once a director has reached the share ownership guideline, for so long as he or she serves on the Board, such director may not dispose of any Common Shares if such disposition would cause the director to be below the share ownership guideline. Common Shares that had been restricted but subsequently vested in addition to purchased Common Shares count toward the share ownership guideline. Our three newer Board members (Ms. McCloskey, Mr. Radtke and Ms. Shea, who each joined the Board in May 2021) are accumulating Common Shares toward their ownership goals, while the rest of our independent directors meet our share ownership guidelines.

In addition to the annual retainer described above:

The Company generally will not pay a fee for attendance at Board or committee meetings, although the Chair of the Board has the discretion to pay attendance fees of $2,000 for extraordinary or special meetings. There were no extraordinary meetings of the Board in 2021. We do not pay a fee for being a member, or attending meetings, of the Executive Committee.

In 2021, our Nominating and Governance Committee engaged FW Cook to conduct a comprehensive review and assessment of our independent director compensation program. FW Cook reviews this program periodically. FW Cook evaluated our director compensation by comparing it against the compensation awarded to directors of companies in our executive compensation comparison group as constituted by FW Cook in 2020, and which we refer to as the 2020 executive compensation comparison group. FW Cook also looked at a broader market segment using data from FW Cook’s 2020 Director Compensation Report, the most recent year for which

such information was available. FW Cook found that the structure of our director compensation program was generally consistent with peer 2020 executive compensation comparison group policy and best practice design as recognized by the proxy advisory firms and investors, noting:

No changes were made to our independent director compensation program in 2021, 2020 or 2019.

FW Cook found in 2021 that the aggregate cost of our independent director compensation program approximates the 75th percentile of our 2020 executive compensation comparison group. FW Cook also found that, before considering the instances where our directors have chosen to receive a portion of their cash compensation in our common shares, our total per director compensation has a somewhat heavier weighting on cash compensation than that of our 2020 executive compensation comparison group.

DIRECTOR COMPENSATION

The following table sets forth our 2021 independent director compensation, including the compensation for the directors’ committee assignments as of such date.

WHAT IS OUR BOARD LEADERSHIP STRUCTURE?

HOW DOES THE BOARD OVERSEE RISK?

As part of its oversight of executive compensation, our Compensation Committee reviews compensation risk. Our Compensation Committee oversaw the performance of a risk assessment of our employee compensation program to determine whether any of the risks arising from our compensation program are reasonably likely to have a material adverse effect on us. Since January 2011, our Compensation Committee has retained FW Cook to perform an annual review of each of our compensation plans and identify areas of risk and the extent of such risk. Our Compensation Committee directs that our Chief Risk Officer work with FW Cook to perform such risk assessment and to be sure that compensation risk is included in our enterprise risk management system. In conducting this assessment, from time-to-time, most recently in February 2018, FW Cook performs a comprehensive systemic, qualitative review of all of our incentive compensation programs and reviews its findings with our Chief Risk Officer for completeness and accuracy. FW Cook seeks to identify any general areas of risk or potential for unintended consequences that exist in the design of our compensation programs and to evaluate our incentive plans relative to our enterprise risks to identify potential areas of concern, if any.

FW Cook updates its compensation risk assessment annually, and did so most recently in February 2022, taking into account the changes the Compensation Committee made in connection with its consideration of incentive compensation for the 2021 performance year, which changes included amendments to our recoupment policy and implementation of compensation arrangements for certain teams at Assured Investment Management, which we refer to as AssuredIM. FW Cook concluded that our incentive plans are well-aligned with sound compensation design principles and do not encourage behaviors that would create material risk for our Company. Our Chief Risk Officer reviewed their findings and agreed with their conclusion. Based on this update, our Compensation Committee continued to find that there is an appropriate balance between the risks inherent in our business and our compensation program.

COMPENSATION COMMITTEE INTERLOCKING AND INSIDER PARTICIPATION

The Compensation Committee of our Board of Directors has responsibility for determining the compensation of our executive officers. None of the members of our Compensation Committee is a current or former officer or employee of our Company. No executive officer of our Company serves on the compensation committee of any company that employs any member of our Compensation Committee.

WHAT IS OUR RELATED PERSON TRANSACTIONS APPROVAL POLICY AND WHAT PROCEDURES DO WE USE TO IMPLEMENT IT?

Through our committee charters, we have established review and approval policies for transactions involving our Company and related persons, with our Nominating and Governance Committee taking the primary approval responsibility for transactions with our executive officers and directors and our Audit Committee taking the primary approval responsibility for transactions with 5% shareholders. No member of these committees who has an interest in a transaction being reviewed is allowed to participate in any decision regarding any such transaction.

Our Nominating and Governance Committee charter requires the Nominating and Governance Committee to review and approve or disapprove in advance all proposed transactions with executive officers and directors that, if entered into, would be required to be disclosed pursuant to Item 404 of Regulation S-K, the SEC provision which requires disclosure of any related person transaction with our Company that exceeds $120,000 per fiscal year. Our Nominating and Governance Committee must also review reports, which our General Counsel provides periodically, and not less often than annually, regarding transactions with executive officers and directors (other than compensation) that have resulted, or could result, in expenditures even if they are not required to be disclosed pursuant to Item 404 of Regulation S-K.

Our Audit Committee charter requires our Audit Committee to review and approve or disapprove all proposed transactions, prior to such transactions, with any person owning more than 5% of any class of our voting securities that, if entered into, would be required to be disclosed pursuant to Item 404 of Regulation S-K. In addition, our Audit Committee charter requires our Audit Committee to review reports regarding such transactions, which our General Counsel provides to our Audit Committee periodically, and not less often than annually, regarding transactions with any persons owning more than 5% of any class of the voting securities of AGL that have resulted, or could result, in expenditures even if they are not required to be disclosed pursuant to Item 404 of Regulation S-K. Our Audit Committee charter also requires the Audit Committee to review other reports and disclosures of insider and affiliated party transactions which our General Counsel provides periodically, and not less often than annually.

WHAT RELATED PERSON TRANSACTIONS DO WE HAVE?

From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of a class of our voting securities and, as a result, are considered “related persons” under the SEC’s rules. These organizations may provide services to us. In 2021, the following transactions occurred with investors who reported beneficial ownership of 5% or more of our voting securities.

As indicated in “Which Shareholders Own More Than 5% of Our Common Shares,” Wellington Management Group LLP and its affiliates, which we refer to as Wellington Management, and BlackRock, Inc. and its affiliates, which we refer to as BlackRock, own approximately 9.8% and 13.8% of our Common Shares outstanding, respectively, as of March 11, 2022 (the record date for our Annual General Meeting), based on the amount of Common Shares they reported in their Schedule 13G filings as of the date set forth in such filing, and on the amount of our Common Shares outstanding as of the record date. We appointed Wellington Management as an investment manager to manage certain of our investment accounts prior to it reaching such ownership thresholds. As of December 31, 2021, Wellington Management managed approximately $2.7 billion of our investment assets, which is approximately 29% of our total fixed maturity and short-term investment portfolio. In 2021, we incurred expenses of approximately $1.9 million related to our investment management agreement with Wellington Management. BlackRock supplies our investment reporting module, and in 2021 we incurred expenses of approximately $497,000 with respect to that module.

From time to time, certain officers, directors, employees, their family members and related charitable foundations, some of whom may be “related persons” under the SEC’s rules, may make investments in various private funds, vehicles or accounts managed by our Company. These investments are available to those of our Company’s employees whom we have determined to have a status that reasonably permits us to offer them these types of investments in compliance with applicable laws. Generally, these investments are not subject to the management fees and performance allocations or incentive fees charged to other investors.

DELINQUENT SECTION 16(a) REPORTS

Our executive officers and directors are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We believe that all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act on a timely basis during fiscal year 2021.

We recognize that our workforce, as a key driver of our long-term performance, is among our most valued assets. During this critical period in our history, as we seek to accomplish a multi-year transformation into a diversified financial services company with a dual focus on financial guaranty insurance and asset management, and as the global community continues to battle an ongoing health crisis, the contributions and well-being of our people are essential to our success.

As a result, our key human capital management objectives are to attract and retain a diverse group of the highest quality employees, including talented and experienced business leaders who drive our corporate strategies and build long-term shareholder value. To promote these objectives, our human capital management programs are designed to reward and support employees with competitive compensation and benefit packages in each of our locations around the globe, and with professional development opportunities to cultivate talented employees and prepare them for critical roles and future leadership positions.

Our compensation program is designed to attract, retain and motivate talented individuals and to recognize and reward outstanding achievement. The components of our program consist of base salary and may include incentive compensation in the form of an annual cash incentive and deferred compensation in the form of cash and/or equity (including, in the case of certain of our asset management professionals, an entitlement to a portion of carried interest allocated to the general partners of certain of the funds we manage). We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns the interests of employees and investors. We also offer employees benefits such as life and health (medical, dental and vision) insurance, retirement savings plans, an employee stock purchase plan, paid time off, paid family leave, an employee assistance program, commuter benefits, tuition reimbursement, reimbursement of expenses for infertility treatments and adoption, emergency backup child, elder and pet care, reimbursement of health club fees, online classes for children, and corporate matches of an employee’s charitable contributions.

CULTURE

We seek to foster and maintain strong ethical standards and a reputation as a business that conducts itself professionally and with a high degree of integrity. In addition, we work to provide and support a respectful and inclusive environment that values the abilities of each employee, leading to enhanced engagement and improved retention. Education and awareness are critical components in promoting our cultural values across the organization. Upon onboarding and annually, all employees are required to complete training in our Global Code of Ethics as well as our policies on the prevention of sexual harassment and discrimination. We also provide additional targeted training and guidance to specific personnel regarding anti-fraud and anti-bribery and anti-corruption related matters.

Transparency towards stakeholders, including shareholders, policyholders, investors and employees, is another hallmark of our culture. For example, each quarter after we issue our financial results, in addition to meeting with shareholders and policyholders, our CEO and our Chief Financial Officer hold a town-hall style meeting for all employees where they provide an update on our performance and strategy, acknowledge contributions made by employees to the continued success of our business and answer questions.

EMPLOYEE DEVELOPMENT OPPORTUNITIES

We invest in the professional development of our workforce. To support the advancement of our employees, we endeavor to strengthen their qualifications by providing equitable access to training, including in leadership, management and effective communication skills, and mentoring opportunities, as well as tuition reimbursement assistance. We also provide opportunities for qualified employees to work abroad in another of our offices. As discussed below, in late 2021, we launched a formal one-on-one mentoring program to provide an additional learning resource for our employees.

DIVERSITY AND INCLUSION

Diversity has long been an important consideration for us. We are committed to building and sustaining at all levels of the organization a diverse workforce that is representative of our communities, in a manner consistent with our business needs, scale and resources, and creating an inclusive culture and workplace that embraces the differences within our staff and effectively utilizes the many and varied talents of our employees.

The composition of our Board reflects our long-standing commitment to diversity. Our Board has been racially and ethnically diverse for well over 15 years. We have had at least one woman serving on our Board for over ten years, and currently have four women serving on our Board.

Our Board recognizes the importance of diversity and inclusion issues to our stakeholders and, in May 2019, established a dedicated Environmental and Social Responsibility Committee to assist the Board in providing oversight of our policies and practices regarding diversity and inclusion issues that affect our business, stakeholders and long-term strategy. The Environmental and Social Responsibility Committee reviews information about our diversity and inclusion initiatives, workforce composition, turnover and other relevant data.

We formed an employee-led Diversity and Inclusion Committee, composed of employees with different backgrounds, points of view, levels of seniority and tenure with us, to provide input into our policies and strategies for achieving a diverse workforce and an inclusive culture. Our employee-led Diversity and Inclusion Committee has played a key role in recommending and working to implement strategies and initiatives, such as the mentoring program and employee resource groups described below.

Our Diversity and Inclusion Policy articulates our commitment to building and sustaining a diverse workforce at all levels of our company and creating an inclusive culture and guides our approaches for achieving these goals. You can find our Diversity and Inclusion Policy on our website at www.assuredguaranty.com/governance.

During 2021, we continued to expand and enhance our existing diversity and inclusion initiatives by adding several new programs:

We have taken several other steps to demonstrate our organizational commitment to diversity and inclusion. Recently, our CEO signed the CEO Action for Diversity and Inclusion Pledge, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace. In addition, to incentivize and hold senior management accountable, we include environmental and social responsibility objectives (including with respect to diversity and inclusion) in our executive compensation structure.

As the worldwide health crisis enters its third year, we continue to navigate through an unprecedented time. In response to the COVID-19 pandemic, we have prioritized safety and adaptability. At the start of the global pandemic, we initiated our business continuity protocols and instructed our employees to work from home, placing an emphasis on the well-being of our employees and their families. Our investments in technology and the regular testing of our business continuity plan allowed us to quickly shift to remote work. Throughout the pandemic, we have encouraged frequent communications and the use of virtual meeting platforms to keep our teams connected and support our employees as they work from home.

In preparation for the return of employees to our office, we took a number of measures to provide for the safety and security of our personnel while at the office and continue to monitor and implement guidance provided by local governments in the jurisdictions where we maintain offices.

Our commitment to environmental and social responsibility starts at the top of our organization. Our Board of Directors recognizes the importance of environmental and social issues to its stakeholders and, in May 2019, established a dedicated Environmental and Social Responsibility Committee to assist the Board in providing oversight of our company’s policies and practices regarding environmental and social responsibility issues that affect our business, stakeholders and long-term strategy. The Environmental and Social Responsibility Committee focuses on a number of subject areas, including environmental risk, particularly climate change related risks, and aspects of human capital management, such as diversity and inclusion, and training and development. Governance matters remain the responsibility of the Nominating and Governance Committee and Compensation Committee.

We consider climate-related risk and material environmental, social and governance factors, which we refer to as ESG factors, in managing both our insured and investment portfolios.

In our insured portfolio, we assess environmental and climate-related risks in our financial guaranty business by requiring that credit underwriting submissions include consideration of environmental and climate-related factors as part of the analysis. Vulnerability to significant or unmitigated exposure to physical risks, such as the increased severity, frequency or duration of weather events or rising sea levels, or the emergence of transition risks, are considered alongside other relevant risk factors to determine if such environmental issues materially impact an obligor’s expected performance. Surveillance review protocol for our insurance portfolio includes a variety of parameters and criteria along with the consideration of environmental risk factors, such as exposure to extreme weather events, geographic locations prone to flooding or wildfires, and compliance with environmental requirements for their potential impact on debt service payments.

In our investment portfolio, we incorporate material ESG information into the investment analysis in order to enhance the investment decisions required to achieve our principal investment objectives. Our portfolio managers rely on their respective ESG corporate philosophy statements and use ESG information, along with a variety of other economic factors, including risk and valuation metrics, when conducting research and due diligence on new investments, and again when monitoring investments for Assured Guaranty’s investment portfolio. On an annual basis, we instruct our two primary external portfolio managers to conduct an ESG analysis of their respective portions of our investment portfolio, to the extent to which ESG data is readily available, for us to analyze if there are any material ESG risks in the portfolio that may adversely impact return expectations.

In addition, we have determined not to make any new investments for our investment portfolio in thermal coal enterprises. As a consequence, we will refrain from making any new investments in (i) thermal coal enterprises that generate 30% or more of their revenue from either the ownership, exploration, mining, or refining of thermal coal, and (ii) corporate and municipally owned utilities that generate 30% or more of their electricity from thermal coal.

AssuredIM incorporates consideration of ESG issues alongside traditional financial factors such as credit analysis and cash flow in its approach to prudent and responsible investing. AssuredIM views ESG as another factor through which it can examine an investment because it recognizes that ESG risks and opportunities can impact current asset value as well as long term investment performance. The manner and degree in which AssuredIM’s investment professionals integrate ESG issues into the investment decision making process depend upon multiple factors, including investment strategy, portfolio construction, asset class, sector, region, investment time horizon, available data, and investor objectives.

ENVIRONMENTAL AND SOCIAL POLICIES

CORPORATE PHILANTHROPY

Giving is an integral part of our corporate culture. We contribute generously to a broad range of causes through direct donations, matching gifts, and corporate sponsorships. Our Corporate Philanthropy Committee, formed in 2020 and composed of volunteer employees, provides our workforce the opportunity to direct philanthropic efforts by selecting charity partners and sourcing employee volunteer activities.

In 2021, we expanded our direct donations program by allocating incremental funds to support the development of targeted strategic partnerships and made $200,000 in contributions to three organizations that work to improve access to education for New York City’s underserved populations. In response to the pattern of threats and violence targeted at Asian American and Pacific Islander communities during 2021, we made an aggregate of $100,000 in contributions to four organizations that work to address this issue across the country. We also expanded the scope of our corporate donations to further align with our vision and values which included a program to support veterans and our first ever contribution to support sustainable and local agriculture. Also, despite the pandemic, we participated in several company sponsored events, including a coat drive and a return to school backpack distribution event, which totaled 240 hours of employee volunteer time. Furthermore, we implemented an employee paid leave program which allows each employee 8 hours per annum to participate in volunteer activities.

We match employee and director gifts to eligible charitable institutions in amounts up to $15,000 each year per individual. In 2021, we provided matching gifts to approximately 250 organizations that are important to our employees and directors.

HOW MUCH STOCK IS OWNED BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS?

WHICH SHAREHOLDERS OWN MORE THAN 5% OF OUR COMMON SHARES?

The following table shows all persons we know to be direct or indirect owners of more than 5% of our Common Shares as of the close of business on March 11, 2022, the record date for the Annual General Meeting. On March 11, 2022, 65,691,443 Common Shares were outstanding, including 44,797 unvested restricted Common Shares. Our information is based on reports filed with the SEC by each of the firms listed in the table below. You may obtain these reports from the SEC.

Our Bye-Laws provide for a maximum of 21 directors and empower our Board of Directors to fix the exact number of directors and appoint persons to fill any vacancies on the Board until the next Annual General Meeting. The Board may appoint any person as a director to fill a vacancy on the Board occurring as the result of any existing director being removed from office pursuant to the Bye-Laws or prohibited from being director by law; being or becoming bankrupt or making any arrangement or composition with their creditors generally; being or becoming disqualified, of unsound mind, or dying; or resigning. The Board may also appoint a person as a director to fill a vacancy resulting from an increase in the size of the Board or a vacancy left unfilled at an Annual General Meeting.

Our Board of Directors has voted to reduce the Board from 13 to 12 members as of the date of our Annual General Meeting this year. Following the recommendation of the Nominating and Governance Committee, our Board of Directors has nominated Francisco L. Borges, G. Lawrence Buhl, Dominic J. Frederico, Bonnie L. Howard, Thomas W. Jones, Patrick W. Kenny, Alan J. Kreczko, Simon W. Leathes, Michelle McCloskey, Yukiko Omura, Lorin P.T. Radtke, and Courtney C. Shea as directors of AGL. Proposal No. 1 is Item 1 on the proxy card.

Our directors are elected annually to serve until their respective successors shall have been elected.

It is the intention of the persons named as proxies, subject to any direction to the contrary, to vote in favor of the candidates nominated by the Board of Directors. We know of no reason why any nominee may be unable to serve as a director. If any nominee is unable to serve, your proxy may vote for another nominee proposed by the Board, or the Board may reduce the number of directors to be elected.

There are no arrangements or understandings between any director and any other person pursuant to which any director was or is selected as a director or nominee.

Summary information about our director nominees and their skills relevant to serving on our Board is provided in the matrix below. Further information about each director nominee may be found on the seven pages following this one.

The Audit Committee operates under a written charter approved by the Board of Directors, a copy of which is available on our website at www.assuredguaranty.com/governance. Each year, the Audit Committee reviews the charter and reports to the Board of Directors on its adequacy. As more fully described in the charter, the primary purpose of the Audit Committee is to assist the Board of Directors in its oversight of the integrity of our financial statements and financial reporting process; our compliance with legal and regulatory requirements and ethics programs as established by management; the system of internal accounting and financial controls; the audit process; the role and performance of our internal audit process; and the performance, qualification and independence of our independent auditor.

The Audit Committee annually evaluates the performance of our Company’s independent auditor and provides assistance to the members of the Board of Directors in fulfilling their oversight of the financial reporting practices, including satisfying obligations imposed by Section 404 of the Sarbanes Oxley Act of 2002, and the financial statements of our Company. The Audit Committee selects the independent auditor for the Board of Directors to recommend to the shareholders to appoint. Our Company’s current independent auditor is PricewaterhouseCoopers LLP, which we refer to as PwC.

PwC has served as our independent auditor since 2003. The Audit Committee believes there are significant benefits to having an independent auditor with an extensive history with the Company, including higher quality audit work and accounting advice, due to PwC’s institutional knowledge of our business and operations, accounting policies and financial systems, and internal control framework and operational efficiencies.

Subject to our Company’s shareholders’ statutory right to set the terms of engagement for our independent auditor, including setting the remuneration of the independent auditor and authorizing the Board of Directors, through the Audit Committee, annually to set such terms of engagement, the Audit Committee contracts with and sets the fees paid to our independent auditor. The fees for services for PwC’s audit services the past two fiscal years are set forth under Proposal No. 3: Appointment of Independent Auditor. Audit fees relate to professional services rendered for the audit of our consolidated financial statements, audits of the U.S. GAAP and statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and U.S. GAAP and statutory financial statements of certain subsidiaries and audit of internal control over financial reporting as required under Sarbanes Oxley Section 404.

The Audit Committee also determines that the non-audit services provided to our Company by the independent auditor are compatible with maintaining the independence of the independent auditor. The Audit Committee’s pre-approval policies and procedures are discussed under Proposal No. 3: Appointment of Independent Auditor.

The Audit Committee is also involved in evaluating the qualifications and performance of the engagement team and the lead partner. The Audit Committee considers the experience of the independent auditor in auditing companies in the financial guaranty insurance industry and considers the effect of changing independent auditors when assessing whether to retain the current independent auditor. Based upon the foregoing, and in light of the quality of audit services and sufficiency of resources provided, the Audit Committee believes choosing PwC as our Company’s independent auditor would be in the best interest of the Company and its shareholders and recommends the retention of PwC as our Company’s independent auditor for 2022.

Our Company’s management prepares our consolidated financial statements in accordance with U.S. GAAP and is responsible for the financial reporting process that generates these statements. Management is also responsible for establishing and maintaining adequate internal controls over financial reporting and for performing an assessment of the effectiveness of these controls. PwC audits our year-end financial statements and reviews interim financial statements. PwC also audits the effectiveness of our internal controls over financial reporting. The Audit Committee, on behalf of the Board of Directors, monitors and reviews these processes, acting in an oversight capacity relying on the information provided to it and on the representations made to it by our management, PwC and other advisors. We have also retained Ernst & Young LLP, which we refer to as EY, to provide services to support our Company’s internal audit program and compliance with Section 404 of the Sarbanes Oxley Act of 2002.

During the last year, and earlier this year in preparation for the filing with the SEC of the Company’s Form 10-K, the Audit Committee:

At each quarterly meeting, EY has the opportunity to address pending issues with the Audit Committee and semi-annually specifically reviews the results of internal audits and the overall internal audit program.

At each meeting, the Audit Committee meets in executive session (i.e., without management present) with representatives of PwC to discuss the results of their examinations and their evaluations of our internal controls and overall financial reporting. Similar executive sessions are held at least semi-annually with representatives of EY. In addition, the Audit Committee meets regularly with certain members of senior management in separate sessions.

Based on the review and discussions referred to above, and in reliance on the information, opinions, reports or statements presented to the Audit Committee by our Company’s management and PwC, the Audit Committee recommended to the Board of Directors that the December 31, 2021 audited consolidated financial statements be included in our Company’s Annual Report on Form 10-K.

The foregoing report has been approved by the Audit Committee.

Our executive compensation program is designed to attract and retain talented and experienced business leaders who drive our corporate strategies and build long-term shareholder value.

The Compensation Committee assesses performance using pre-established measures of success that are tied to our key business strategies. This approach encourages balanced performance, measured relative to financial and non-financial goals as well as measures of shareholder value, and discourages excessive risk taking or undue leverage by avoiding too much emphasis on any one metric, or on short-term results.

In 2021 we exceeded all but one of the six financial performance targets set by our Compensation Committee at the beginning of the year, in each case also exceeding prior year performance. We also enjoyed substantial success in achieving the non-financial goals set by our Compensation Committee at the beginning of the year.

More than five years of difficult and complex negotiation and litigation over defaulted insured Puerto Rico exposures finally bore fruit in 2021. We completed two plan support agreements with the Federal Oversight Management Board for Puerto Rico and other important stakeholders in 2021, covering 74% of the Puerto Rico debt outstanding on December 31, 2021. This led directly to to the resolution just last week of a significant portion of our insurance exposure to Puerto Rico -- approximately $1.3 billion of net par outstanding at December 31, 2021. With the resolution of our Puerto Rico exposures so much more likely when we closed our books for the year, we were able to take a benefit against our expected losses related to Puerto Rico that was the primary driver of the $204 million economic benefit against our expected losses in the public finance sector.

Similarly, more than a decade of hard work with servicers in our legacy residential mortgage backed securities (which we refer to as RMBS) portfolio to encourage the servicers to keep borrowers in their homes through modifications and forbearances and to maintain liens on the homes continued to pay off in 2021 as ongoing home price appreciation improved expected recoveries and performance of our insured RMBS portfolio, which, over the year, resulted in an economic benefit against our expected losses of $100 million.

We achieved these results despite a persistently challenging business environment.

The achievements described in this section even in the face of this environment were important considerations for the Compensation Committee in determining the compensation of our named executive officers for the 2021 performance year.

The table and chart below depict the cumulative TSR in dollars on our Common Shares from December 31, 2016 through February 28, 2022, relative to the cumulative TSR of the Russell Midcap Financial Services Index, S&P 500 Stock Index, S&P 500 Financials Index and our current executive compensation comparison group over the same period. (Our current executive compensation comparison group is described below under “Compensation Governance—Executive Compensation Comparison Group.”) The table and chart depict the value on December 31 of each year from 2016 through 2021, and on February 28, 2022, of a $100 investment made on December 31, 2016, with all dividends reinvested.

 

Our Compensation Committee has long recognized that, as the only public company still writing financial guaranty business, it is difficult for us to identify companies or indices with companies that experience business environments similar to ours, and to which we can compare our performance, including our TSR. For example, developments related to Puerto Rico appear to have had a much larger influence on our TSR than on that of any of the indices or groups to which we compare ourselves. We have substantial insured exposure to general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations. Many of these entities have defaulted on their payment obligations, and we are paying claims related to such payment defaults. We believe that developments relating to our Puerto Rico exposure have had a strong influence on the price of our shares. This appears to have contributed to volatility of our share price. On January 18, 2022, the plan of adjustment covering $1.2 billion, or 34% of our insured net par outstanding of Puerto Rico exposures as of December 31, 2021, was approved. Then, on January 20, 2022, orders were entered finalizing the consensual modification for another $168 million of our insured Puerto Rico exposure outstanding as of December 31, 2021. On February 24, 2022, we announced in our earnings release the impact of these developments on our 2021 consolidated financial statements. We believe it is instructive to look at the TSR measurements not only at December 31 of each year, but also at February 28, 2022 (the last trading day in February), when the price of our shares reflected the impact of 2021 developments related to Puerto Rico announced on February 25, 2022. As can be seen, when measured through February 28, 2022, our TSR essentially kept pace with most of the financial indices to which we compare ourselves, and exceeded our current executive compensation comparison group by nearly 50%.

For 2021, 89.5% of Mr. Frederico’s compensation constituted incentive compensation: 28.9% of his compensation was in the form of a performance-based cash incentive that was awarded based on measuring his performance against financial performance targets and non-financial objectives set at the beginning of the year, and 60.6% was in the form of a long-term equity-based incentive, with 60% of that equity award dependent on performance relative to our pre-established objectives for 2022 to 2024. The allocation between his fixed and incentive compensation for the 2021 performance year increased to 89.5% incentive compensation from 88.9% for the 2020 performance year.

Mr. Frederico received a compensation package for the 2021 performance year that was 6.5% higher than the one he received for the 2020 performance year, reflecting our strong financial and share price performance and the achievement of non-financial strategic objectives that position us for future growth and our successful transformation into a financial services company with a dual focus on financial guaranty and asset management. The increase should also be viewed in the context of Mr. Frederico's compensation package for the 2020 performance year being 4.2% lower than the one he received for the 2019 performance year, and his 2021 compensation package being only 1.9% higher than his 2019 compensation package.

Mr. Frederico’s compensation package for 2021, 2020 and 2019 were composed of the following:

The compensation package presented in the table above is different from the SEC-required disclosure in the Summary Compensation Table below and is not a substitute for the information in that table. Rather, it is intended to show how the Compensation Committee linked Mr. Frederico’s compensation and its components to our performance results and his achievements for the prior year.

Our executive compensation program applies to our CEO, each of our other executive officers, and our other senior managers reporting directly to our CEO, all of whom together we refer to as our senior leadership team. Our executive compensation program is designed to recognize and reward outstanding achievement and to attract, retain and motivate the talented individuals needed to lead and grow our Company’s business. We maintain an ongoing dialog with our shareholders and incorporate their feedback into our program so that the program is aligned with their interests.

The guiding principles of our program are:

Our program rewards the performance of our senior leadership team, who are directly responsible for our operational results, with a higher proportion of variable and performance-based compensation than it rewards lower level executives. We use a mix of variable at-risk compensation with different time horizons and payout forms to provide an incentive for both annual and long-term sustained performance, in order to maximize shareholder value in a manner consistent with our Company’s risk parameters. The Compensation Committee assesses the performance of our senior leadership team from both a financial and a non-financial perspective, using pre-established goals.

Members of our senior leadership team are eligible to receive an annual cash incentive, which is based on their performance against pre-established goals over the previous year. They may also receive a long-term equity incentive, the majority of which is performance-based and cliff vests at the end of a three-year performance period, and the remainder of which is time-based and cliff vests at the end of a three-year period. The long-term equity incentive is structured to encourage retention and a long-range mindset.

The compensation program is structured with upside potential for superior executive achievements, but also the possibility of reduced compensation if members of our senior leadership team do not successfully execute our Company’s strategies. By increasing our senior leadership team’s motivation to enhance shareholder value over the long term, our compensation program aligns their incentives and shareholder interests.

For the 2021 performance year, we maintained the same structure for the compensation package for our senior leadership team as we did for the 2020 performance year:

For the past several years, we have actively engaged with our shareholders in order to obtain their feedback on our executive compensation program. In May 2018, after negative recommendations from the two leading proxy advisory firms, only 60% of the Common Shares voting approved our say-on-pay proposal. Following that 2018 say-on-pay vote, we sought to engage with our shareholders with respect to the changes we proposed to make to the executive compensation program in response to the recommendations from the two leading proxy advisory firms and the say-on-pay result, and based on advice from FW Cook. As part of that process and our continued dialogue with shareholders, we contacted holders of an aggregate of over 77% of our Common Shares (which comprised every shareholder holding more than 0.16% of our outstanding shares). Based on the feedback from our shareholders and advice from FW Cook, we made a number of structural changes to our executive compensation program in 2019:

In May 2019, after we made these structural changes to our executive compensation program based on discussions with our shareholders and advice from FW Cook, investors holding over 93% of the Common Shares voting approved our say-on-pay proposal at our Annual General Meeting. Then, in May 2020, and with respect to an unchanged executive compensation program, investors holding over 93% of the Common Shares voting once again approved our say-on-pay proposal at our Annual General Meeting. In light of this positive feedback, we made only one change to our compensation program for the 2020 performance year, adding a new financial performance measure related to our asset management business.

In late 2021 and into early 2022, we again sought to engage with our shareholders with respect to compensation matters. We contacted holders of an aggregate of nearly 85% of our outstanding Common Shares (which comprised every shareholder holding more than 0.1% of our outstanding Common Shares) and offered to discuss our executive compensation program. The holders of approximately 24% of our outstanding Common Shares specifically responded that they did not need to speak with us because they had no concerns about our executive compensation program, which we have not changed from last year except to expand our recoupment policy.

Our Compensation Committee, composed solely of independent directors, is responsible for all decisions regarding the compensation of our senior leadership team, including our CEO. Our Compensation Committee works closely with FW Cook, the Chair of our Board and management to examine pay and performance matters throughout the year, and consults with our Board prior to making final compensation decisions.

Our Compensation Committee conducts in-depth reviews of performance and then applies judgment to make compensation decisions. Our Compensation Committee believes its process, described below, is an effective way to assess the performance, risk management and leadership demonstrated by Mr. Frederico and other members of our senior leadership team.

For the 2021 performance year, the compensation package for our senior leadership team again consists of three principal elements: base salary, cash incentive compensation and long-term equity incentives. Our practice is to review the components of our executive compensation package separately and monitor the total of the various components. We consider each component and the total against our compensation objectives described in “Overview of Philosophy and Design.” Decisions related to one compensation component (e.g., cash incentive compensation) generally do not materially affect decisions regarding any other component (e.g., long-term equity incentives) because the objectives of each element differ. Due to the seniority of the members of our senior leadership team, variable pay elements are emphasized, but no specific formula, schedule or structure is currently applied in establishing the percentage of total compensation delivered to the members of our senior leadership team through any particular compensation element.

Our Compensation Committee establishes the base salary of each member of our senior leadership team in consultation with FW Cook. We believe base salary is necessary to attract and retain key executives by providing appropriate compensation that is based on position, experience, scope of responsibility and performance. Base salary provides liquidity to our each member of our senior leadership team and balances the levels of guaranteed pay with at-risk pay to properly manage our compensation-related risk. The amount is based on the responsibilities, skills and experience of each member of our senior leadership team, as well as market measures. The level of the base salary of each member of our senior leadership team reflects our Compensation Committee’s view of the contribution that executive has consistently made to our Company’s success over several years, the continuing importance of that executive to our Company’s future, and the difficulty and expense of replacing that executive with one of a similar caliber. Our Compensation Committee does not guarantee salary adjustments on an annual basis; in fact, our CEO’s base salary was last adjusted in February 2017. Base salary is set toward the beginning of the year and is paid to each member of our senior leadership team for ongoing performance throughout the year. For the 2021 performance year, our Compensation Committee established the base salaries of our senior leadership team in February 2021.

Unlike base salary, which is set at the beginning of the year in which it is paid, cash incentive compensation is determined after the end of the performance year to which such compensation relates. For the 2021 performance year, our Compensation Committee determined the amount of the cash incentive compensation in February 2022.

Our Compensation Committee uses a formula to award cash incentive compensation in order to enhance the transparency of our process. The amount of cash incentive compensation is determined based on the extent to which the members of the senior leadership team achieve certain pre-established performance targets; 67% is tied to the achievement of six financial performance targets and 33% is tied to the achievement of non-financial objectives.

Our Compensation Committee considers the six financial performance targets to be important in assessing our Company and the performance of our senior leadership team; for all but one of our named executive officers, each target has a weighting of 11.17% (for a total of 67%). Five of the financial performance targets are based on non-GAAP financial measures that are described below under “Non-GAAP Financial Measures.”

Similar to the financial performance goals, the non-financial objectives also relate to matters that are important to our business. Our Compensation Committee believes the qualitative objectives are necessary to fully evaluate the annual achievements that benefit our shareholders, and it does not individually weight the non-financial objectives because it believes it is more appropriate to evaluate the level of achievement of all of the non-financial objectives in their totality.

We provide a diagram of our formula for awarding our annual cash incentive compensation below:

The financial performance targets for 2021 for all the members of our senior leadership team, including Mr. Frederico, our CEO, are set out below. The non-financial objectives for Mr. Frederico are set out below under “CEO Performance Review—Cash Incentive—Mr. Frederico’s Non-Financial Objectives”, while certain of the non-financial objectives for the named executive officers other than Mr. Frederico are discussed below under “Compensation Decisions of Other Named Executive Officers.” For the 2021 performance year, the financial performance targets and the non-financial objectives for the named executive officers were established in February 2021, and the Compensation Committee determined the extent to which they had been satisfied in February 2022.

Five of the six financial goals are based on non-GAAP financial measures and four of those five are labeled “core” to distinguish them from similar non-GAAP financial measures. The four “core” measures have been adjusted to exclude the impact of consolidating certain variable interest entities and similar entities, which we refer to as VIEs, while the similar non-core measures have not been so adjusted. We include below under “Non-GAAP Financial Measures” a description of the adjustments we make to the most comparable GAAP financial measures to arrive at these measures.

At the beginning of a performance year, our Compensation Committee assigns each member of our senior leadership team an Individual Target Cash Incentive Amount, which is calculated as a multiple of that executive’s base salary, and which we refer to as the Individual Target Cash Incentive Multiple. The amounts of the base salary and Individual Target Cash Incentive Multiples are set based on the executive’s position and level of responsibility, historic pay level, importance to the future strategic direction of our Company and FW Cook’s advice about the compensation practices of companies in our comparison group.

For the 2021 performance year, our Compensation Committee assigned each of the named executive officers an Individual Target Cash Incentive Multiple of 2.0x, the same as last year.

Then, at the end of a performance year, for each member of our senior leadership team, our Compensation Committee calculates and aggregates the weighted achievement scores for the financial performance measures and the individual non-financial objectives. When assessing the level of achievement and assigning scores for the year, our Compensation Committee takes into account the difficulty of achieving particular targets or objectives. Our Compensation Committee has discretion to assign achievement scores of up to 200% for outstanding performance and achievement scores of down to 0% for performance below target, based on its view of the level of achievement attained for each financial performance target, and for the non-financial objectives taken as a whole. With the weightings the Compensation Committee has established for each component of the calculation aggregating 100% overall, the maximum total overall weighted score achievable is 200%, and since the Individual Target Cash Incentive Multiple for each of our named executive officers is 2.0x, the maximum short-term incentive opportunity for each of our named executive officers is 4x their base salary. For the 2018 performance year, in response to the previous year's say-on-pay vote result, shareholder feedback and the advice of FW Cook, the Compensation Committee reduced Mr. Frederico's Individual Target Cash Incentive Multiple to 2.0x from 2.5x, thereby reducing his maximum short-term incentive opportunity to 4x his base salary from 5x his base salary. The Compensation Committee has maintained Mr. Frederico's Individual Target Cash Multiple at 2.0x since then, and Mr. Frederico has not received an increase in his base salary since 2017.

Our Compensation Committee may exercise negative discretion where the financial performance measure result, while above the target established by our Compensation Committee, is less than the prior year result. The Compensation Committee has exercised its negative discretion in this area most recently for the 2019 performance year. For the 2021 performance year, there was no instance

where the 2021 performance measure result was above the target established by our Compensation Committee but below the prior year result, so the Compensation Committee had no occasion to consider exercising its negative discretion.

The Compensation Committee selected five of the financial performance measures in 2015 based on the unique earnings model of the financial guaranty industry. The Compensation Committee reconsiders each year whether these measures are the appropriate ones to use in light of our Company’s business. For the 2020 performance year, the Compensation Committee added a sixth financial performance measure, based on gross third-party assets, to appropriately incentivize our executives to develop and grow our asset management business. All six financial performance measures receive an equal weighting of 11.17% (so adding to 67% in total) for most of our senior leadership team. For those members of our senior leadership team with responsibility for particular aspects of our business, financial performance measures related to their areas of responsibility are weighted more heavily than the other measures. Among our named executive officers, only one has financial performance measures with unequal weighting: for Mr. Buzen, gross third party assets raised are weighted 33.5% while the other measures are weighted 6.7% (so again adding to 67% in total). The Compensation Committee believes our progress measured against the financial performance measures it established will, over the long term, result in optimal total shareholder return.

Each year the Compensation Committee sets our financial performance targets at levels it views as challenging based on the projected operating results in our annual business plan. The goals and our business plan acknowledge the unique long-term nature of our financial guaranty insurance business and that the required accounting treatment and operations of a financial guaranty insurer are distinct from other insurance product lines.

Based on weighted achievement scores for the financial performance targets and the individual non-financial objectives for each member of the senior leadership team, the individual payouts of the cash incentive for 2021 were calculated as follows:

The basic formula for determining cash incentive compensation has remained the same since our Compensation Committee developed the methodology, together with FW Cook, at the beginning of 2015, and our Company’s performance on key financial measures has improved greatly since that time. Four out of five of the financial performance measurements applicable in both periods have improved, as reflected in the table below.

The progress we have made on these fronts is the result of the leadership of Mr. Frederico and the efforts of our senior leadership team. As a result, our Compensation Committee retained the same general methodology and formulas for cash incentive compensation implemented in 2015 for Mr. Frederico and other members of our senior leadership team, although it has fine-tuned its methodology since then, with the addition of a new financial performance measure beginning in the 2020 performance year being the most recent change.

In addition to the cash incentive compensation, our Compensation Committee awards long-term incentive compensation in the form of our Common Shares.

Like cash incentive compensation, equity incentive compensation is awarded after the end of the performance year to which such compensation relates. For the 2021 performance year, our Compensation Committee determined the amount of equity incentive compensation in February 2022.

Sixty percent of the nominal value of the award is in the form of PSUs that may be earned over a 3-year performance period based on pre-established performance targets, and are paid at the end of the 3-year performance period if particular performance targets are achieved, and the remaining forty percent is in the form of restricted share units (which we refer to as RSUs) that cliff vest at the end of a 3-year period. Details about the individual awards are set out in “CEO Performance Review” and “Other Named Executive Officer Compensation Decisions.”

This structure has been in place since 2019 and the Compensation Committee maintained the same structure for the February 2022 grants.

Our Compensation Committee believes that Core ABV per share is the best measure of the intrinsic value of our Common Shares, and that growth in Core ABV per share will eventually result in growth in the price of our Common Shares. Our Compensation Committee believes that this measure is so important that it has incorporated the measure into both its short-term cash incentive program and its long-term equity compensation program, so that the senior leadership team is motivated to grow Core ABV per share on both a short-term and long-term basis.

Our Compensation Committee set the ABV PSU target growth rate based on the projected operating results in our annual business plan and after consulting with FW Cook. In setting the ABV PSU target, our Compensation Committee did not consider significant potential or theoretical strategic activities that had not been finalized or share repurchases the funding of which require regulatory approvals that have not yet been obtained, because the conditions for success are highly contingent and outside of the control of our senior leadership team. Given the outsize positive impact on our Company of the successful achievement of at least some such endeavors, our Compensation Committee believes it is appropriate for its senior leadership team to be encouraged to pursue success in these areas through the ABV PSUs. The ABV PSU performance targets remain aligned with our long range plan and are unchanged from last year.

Since our ultimate goal is to provide growing shareholder value, our Compensation Committee believes that our long-term equity incentive compensation should also be based on our TSR. However, recognizing that share prices may be influenced by a number of factors, the Compensation Committee decided that a relative measure of TSR was most appropriate.

Our Compensation Committee awards RSUs with the intent of providing members of the senior leadership team with long-term incentive compensation that increases in value as our Company achieves its strategies. Our Compensation Committee believes this incentivizes members of the senior leadership team to remain with the Company and help build shareholder value over the long term.

The Compensation Committee also considered the appropriate amount of long-term incentive equity compensation to award Mr. Frederico in recognition of our significant achievements despite the continued disruption of COVID-19 and the extraordinarily low interest rates of 2021. In recognition of these accomplishments and the Compensation Committee’s strong desire that Mr. Frederico continue his leadership as we execute on our multi-year strategy to transform our Company into a diversified financial services company with a dual focus on financial guaranty and asset management, the Compensation Committee granted Mr. Frederico long-term equity compensation with a target nominal value of $7,250,000, an increase of $250,000 from his grant for the 2020 performance year. Mr. Frederico’s total compensation for the 2021 performance year was composed of the following:

The compensation package presented in the table above is different from the SEC-required disclosure in the Summary Compensation Table below and is not a substitute for the information in that table. Rather, it is intended to show how the Compensation Committee linked Mr. Frederico’s compensation and its components to our performance results and his achievements for the prior year. The base salary is paid during the performance year, while all of the components of the incentive compensation is based on achievements during the performance year and so is awarded in the first quarter of the following year.

Each February the Compensation Committee determines Mr. Frederico's base salary for that performance year. Consistent with the Compensation Committee's pay-for-performance philosophy, it has since 2017 chosen to maintain Mr. Frederico’s base salary at $1,250,000 and to use incentive compensation to reward him for his performance, experience and contributions and to motivate him to continue his leadership.

To determine Mr. Frederico’s cash incentive, as discussed above, the Compensation Committee used a formula that involved aggregating the weighted achievement scores for certain financial performance targets and individual non-financial objectives, and multiplying the result by Mr. Frederico’s Individual Target Cash Incentive Amount. Please refer to the diagram and discussion found above under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program—Cash Incentive Compensation.”

In February 2021, the Compensation Committee established targets for six financial performance measurements for Mr. Frederico (and for each other member of our senior leadership team) for the 2021 performance year. The financial performance targets were based on the business plan that the Board of Directors reviewed and approved in November 2020, and were designed to measure our progress in creating value for our shareholders. We include above under “Executive Compensation Program Structure and Process—Components of Our Executive Compensation Program” a detailed description of the financial performance measurements, and why the Compensation Committee considers them to be important in assessing our Company and the performance of each member of our senior leadership team. Five of the six targets are based on non-GAAP financial measures.

The Compensation Committee set all of the 2021 targets for the financial performance measurements above the 2020 actual results, some substantially, and viewed all of the 2021 targets as challenging in light of then current market conditions and the nature of our business model.

In 2021, we exceeded all but one of the six 2021 targets for the financial performance measures.

We achieved these results despite a persistently challenging business environment.

The Compensation Committee assigned Mr. Frederico achievement scores for his achievements against each individual financial performance target, and then weighted his financial performance measurement scores in accordance with the cash incentive formula, which resulted in a weighted financial performance goal score of 82.1%:

The Compensation Committee also evaluated Mr. Frederico’s 2021 achievements against his 2021 non-financial objectives. Highlights of those achievements include completing two plan support agreements in 2021, covering 74% of the Puerto Rico debt outstanding on December 31, 2021, and enabling a benefit against our expected losses related to Puerto Rico that was the primary driver of the $204 million economic benefit against our expected losses in the public finance sector; improved expected recoveries and performance of our insured RMBS portfolio; and successful management of capital by issuing new public debt and retiring higher interest debt, and by returning $562 million to shareholders while building our core businesses. This was accomplished while successfully navigating COVID-19 restrictions and taking important steps in environmental and social responsibility areas.

Based on Mr. Frederico’s 2021 achievements against his 2021 non-financial objectives, the Compensation Committee awarded him an achievement score of 170% against those objectives. Applying that score to the cash incentive formula resulted in a weighted non-financial objective score of 56.1%.

In reviewing Mr. Frederico’s 2021 performance scorecard as a whole, the Compensation Committee determined that he had very strong performance. In particular, the Compensation Committee found that Mr. Frederico should be recognized for us exceeding all but one of our six financial performance targets set by the Compensation Committee for 2021, some of them by a very significant amount. The

The Compensation Committee awarded all of Mr. Frederico’s long-term incentive compensation in the form of PSUs and RSUs. The $7,250,000 target nominal amount of long-term equity constituted less than a 4% increase over the target nominal amount for the prior year. The Compensation Committee wished to provide Mr. Frederico with a strong incentive to continue his valued leadership of our Company and to generate long-term, sustained growth that will enhance shareholder value as we continue our multi-year effort to establish AssuredIM in the asset management business while growing our insurance business, and so become the diversified dual-focused financial services company that we envision.

When we prepare the Summary Compensation Table, we report the value of the grants using U.S. generally accepted accounting principles (which we refer to as U.S. GAAP), in accordance with the SEC’s rules.

OTHER NAMED EXECUTIVE OFFICER COMPENSATION DECISIONS

The Compensation Committee made compensation awards to the other named executive officers for the 2021 performance year based on its assessment of their achievements and Mr. Frederico’s review of their performance, as well as Mr. Frederico’s compensation recommendations. The other named executive officers’ achievements were evaluated based on their contributions to our achievement of our financial measurement targets, their contributions to the achievement of Mr. Frederico’s non-financial objectives, and their own achievements of the individual non-financial objectives Mr. Frederico had assigned to them, as described below.

Mr. Bailenson was responsible in the 2021 performance year for meeting all internal and external financial requirements, managing our capital efficiently, meeting with investors, and participating on earnings calls. Mr. Bailenson has involved himself in all aspects of our business and leads the financial team in addressing market and regulatory changes. More specifically, Mr. Bailenson:

Ms. Chow is an effective leader of legal resources for our Company. Her work managing corporate governance and other issues before our Board was exemplary. Under Ms. Chow’s direction, we were able to navigate the complex compliance and regulatory environments of both the insurance and asset management segments of our business to accomplish our corporate objectives. More specifically, Ms. Chow:

Mr. Brewer was responsible in the 2021 performance year for ensuring that all of our insured exposures are reviewed annually and assigned appropriate internal ratings, for managing loss mitigation strategies for our troubled credits, and for overseeing our IT department. Mr. Brewer has been a major contributor to the successful operations of our company and has been a thought leader in our relationships with our rating agencies. (Effective December 31, 2021, Mr. Brewer resigned as Chief Surveillance Officer and became, effective January 1, 2022, Senior Advisor to Chief Executive Officer.) More specifically, Mr. Brewer:

Mr. Buzen was responsible in the 2021 performance year for guiding investment decisions for our investment portfolio and building our asset management business. More specifically, Mr. Buzen:

The 2021 base salaries of our other named executive officers were set by the Compensation Committee in February 2021. Consistent with the Compensation Committee's pay-for-performance philosophy, it chose to set Mr. Bailenson's 2021 salary at the same level as 2020, and Mr. Buzen's 2021 salary at the same level as it had been set in August 2020 when he became Chief Investment Officer and Head of Asset Management, and to use incentive compensation to reward each of them for their performance, experience and contributions, and to motivate them to continue their leadership of their respective functions. In light of Ms. Chow’s achievements for the 2020 performance year and the complexity of the issues handled by the legal department, the Compensation Committee supported Mr. Frederico's recommendation to increase her salary to $600,000 from $550,000 for the 2021 performance year. In recognition of the steadiness with which Mr. Brewer manages both the surveillance and the information technology departments, the efforts of the surveillance department in analyzing the potential impact of COVID-19 on the insured portfolio, and Mr. Brewer’s recruitment of a new chief technology officer during the year, the Compensation Committee also supported Mr. Frederico's recommendation to increase Mr. Brewer's salary to $550,000 from $525,000 for the 2021 performance year. In February 2022 the Compensation Committee decided to maintain the 2022 salaries of all of the other named executive officers at their 2021 levels.

In the case of the other named executive officers, for the 2021 performance year the Compensation Committee calculated and aggregated the weighted achievement scores for the financial performance targets (which were the same as Mr. Frederico’s except in the case of Mr. Buzen, whose financial performance measures were more heavily weighted to gross third-party assets raised) and their non-financial objectives (which were a combination of their contribution to Mr. Frederico’s non-financial objectives and their achievement of their own individual non-financial objectives), taking into account the level of difficulty of achieving particular targets or objectives. Based on their achievements, after applying the formula, the Compensation Committee awarded them the cash incentives calculated as shown in the table below.

The Compensation Committee awarded all of the other named executive officers long-term incentive compensation in the form of PSUs and RSUs with the same terms and in the same proportion as the PSUs and RSUs awarded to Mr. Frederico. The target nominal amount of long-term equity reflected the Compensation Committee’s desire that each of the other named executive officers have a strong incentive to help generate long-term, sustained growth for our Company. The amounts of PSUs and RSUs awarded to each other named executive officer vary by individual and are based on their respective positions and levels of responsibility, historic compensation levels and FW Cook’s advice about the compensation practices of companies in our comparison group.

The Compensation Committee considered FW Cook’s analysis of the compensation paid to named executive officers in the 21-company executive compensation comparison group constituted by FW Cook in 2021, which we refer to here as our current executive compensation comparison group, when evaluating the compensation of our named executive officers. (Our current executive compensation comparison group, and how it changed from our 2020 executive compensation comparison group, is described under “Compensation Governance—Executive Compensation Comparison Group” below). According to FW Cook, for the 2020 performance year, which is the most recent data available, the target total direct compensation for our named executive officers (excluding Mr. Frederico) ranked at the 63rd percentile on average, ranging from below median to above the 75th percentile, of amounts for the named executive officers of our current executive compensation comparison group, reflecting the experience, leadership, specialized skill sets and sustained performance of our senior leadership team. Actual total direct compensation for all our named executive officers as a group (excluding Mr. Frederico) paid for the 2020 performance year ranked at the 64th percentile of our current executive compensation comparison group, reflecting our non-equity incentive payouts for 2020 performance, which were aligned with our 2020 performance relative to our key business goals and strategies, as well as our strong financial performance for that period. For the 2021 performance year, our one-year TSR was 62.35%, the highest of our current executive compensation comparison group, and our three-year TSR at the end of 2021 was in the 43rd percentile of our current executive compensation comparison group. Our long-term incentive equity awards generally remain unchanged and continue to align with our current executive compensation comparison group.

As previously disclosed in our Current Report on Form 8-K filed on January 4, 2022, Mr. Brewer resigned as Chief Surveillance Officer and as an executive officer of AGL, effective December 31, 2021, in accordance with a separation and release agreement, which we refer to as the Separation Agreement, between Mr. Brewer and us. We entered into the Separation Agreement with Mr. Brewer in recognition of his successful years at our Company and to encourage him to work through December 31, 2022, in order to facilitate the transition of his duties to other persons in our company.

Pursuant to the Separation Agreement, Mr. Brewer remains employed by us in a non-executive officer position, serving as Senior Advisor to the Chief Executive Officer of the Company, for a transition period, which we refer to as the Transition Period, from January 1, 2022 to December 31, 2022, which we refer to as the Retirement Date.

The Separation Agreement provides for the following payments to Mr. Brewer:

Pursuant to the Separation Agreement, if Mr. Brewer remains employed through the Retirement Date, any unvested equity awards that he holds on the Retirement Date will vest in accordance with the terms that the applicable award agreement provides upon retirement. However, any previously granted equity awards that include Company performance-based vesting conditions remain subject to satisfaction of such applicable performance conditions following the Retirement Date. In addition, Mr. Brewer will be reimbursed for expenses incurred in the preparation of his tax returns through the 2022 tax year.

The Separation Agreement contains covenants by Mr. Brewer relating to protection of our confidential information, cooperation, non-competition, non-solicitation and non-disparagement and other standard provisions. Mr. Brewer executed a release of claims as part of the Separation Agreement and the Separation Agreement provides that Mr. Brewer will execute another release of claims after his retirement such that the second release becomes effective within 60 days following his retirement. Payments pursuant to the Separation Agreement are subject to forfeiture and/or clawback in the event of violation of these covenants.

Our Compensation Committee wished to recognize the considerable accomplishments of Mr. Frederico and our other named executive officers in leading our Company through another challenging year brought on by the continued combination of the COVID-19 pandemic and historically low interest rates. As such, our Compensation Committee determined that it was appropriate that Mr. Frederico and the other named executive officers experience an increase in their short term cash incentive payments consistent with exceeding all but one of the six financial performance targets set by our Compensation Committee last year, particularly in a year in which the price of our shares increased as much as it did. The Compensation Committee also believes the contributions of each of these individuals is critical to successfully accomplish our multi-year transformation into a diversified financial services company with a dual focus on financial guaranty insurance and asset management. The Compensation Committee addressed these objectives by granting these individuals long-term equity awards that the Compensation Committee believes will provide appropriate motivation for them to see the transformation through.

The Compensation Committee oversees all aspects of our executive compensation program. The Compensation Committee has responsibility for:

For more than ten years, including in 2021, the Compensation Committee has engaged FW Cook as its independent compensation consultant and considered advice and information from that firm in determining the amount and form of compensation for each member of our senior leadership team. Periodically, the Nominating and Governance Committee also engages FW Cook to conduct a comprehensive review of the compensation package for the independent directors; FW Cook last undertook such a comprehensive review in 2021.

In 2021, FW Cook’s work for the Compensation Committee included analyzing our compensation practices in light of best practices, providing a compensation risk assessment, reviewing and advising us on changes to our comparison group of companies, collecting and providing relevant market data, reviewing data and analyses provided by other consultants, and updating the Compensation Committee with respect to evolving governance trends.

The Compensation Committee has considered the independence of FW Cook in light of SEC rules and NYSE listing standards. It requested and received a letter from FW Cook in 2021 affirming factors relevant to assessing FW Cook’s independence. The Compensation Committee discussed the content of the letter and concluded that FW Cook’s work did not raise any independence or conflict of interest issues.

When the Compensation Committee began to contemplate amending the long-term equity incentive program to include performance restricted share units based on relative TSR performance in 2018, we engaged Aon to model the grant date fair value and ultimate performance and payout of hypothetical Relative TSR PSUs with various characteristics and, once the characteristics of the Relative TSR PSUs were settled, to provide grant date valuation of the Relative TSR PSUs and to provide Relative TSR PSU value tracking over the life of the Relative TSR PSUs. The Compensation Committee engaged Aon as a compensation consultant beginning in 2018 when it established the TSR PSUs in February 2019, and again in 2021 when it considered whether, given changes in the Russell Midcap

Financial Services Index since 2019, it should change the reference index used for the TSR PSUs (it chose not to make any changes). We also engage Aon to calculate and report on the value of the TSR PSUs on an ongoing basis.

The Compensation Committee has considered the independence of Aon in light of SEC rules and NYSE listing standards. It requested and received a letter from Aon in 2021 affirming factors relevant to assessing Aon's independence. The Compensation Committee discussed the content of the letter and concluded that Aon's work did not raise any independence or conflict of interest issues.