DEF 14A of Assured Guaranty LTD
Filed Mar 20, 2024 · FY20230001273813-24-000015
TABLE OF CONTENTS
| Employee Stock Purchase Plan ____________ | 72 | | Indemnification Agreements _______________ | 72 | | 2023 Grants of Plan-Based Awards _________ | 73 | | Outstanding Equity Awards ________________ | 75 | | 2023 Shares Vested _____________________ | 76 | | Non-Qualified Deferred Compensation _______ | 77 | | Potential Payments Upon Termination or Change in Control ______________________ | 77 | | Non-Qualified Retirement Plans ____________ | 79 | | Incentive Plans _________________________ | 79 | | CEO Pay Ratio _________________________ | 80 | | Pay Versus Performance__________________ | 80 | | EQUITY COMPENSATION PLANS INFORMATION ________________________ | 84 | | PROPOSAL NO. 2: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION ______________________ | 85 | | PROPOSAL NO. 3: APPROVAL OF THE ASSURED GUARANTY LTD. 2024 LONG-TERM INCENTIVE PLAN__ | 86 | | PROPOSAL NO. 4: APPOINTMENT OF INDEPENDENT AUDITOR _____________________________ | 94 | | Assessment of Independent Auditor_________ | 94 | | Independent Auditor Fee Information ________ | 95 | | Pre-Approval Policy of Audit and Non-Audit Services ______________________________ | 95 | | Audit Committee Report___________________ | 96 | | PROPOSAL NO. 5: PROPOSALS CONCERNING OUR SUBSIDIARY, ASSURED GUARANTY RE LTD. ______________________________ | 98 | | Proposal 5.1 - Election of AG Re Directors ____ | 98 | | Proposal 5.2 - Appointment of AG Re Auditor __ | 100 | | SHAREHOLDER PROPOSALS FOR 2025 ANNUAL MEETING _____________________ | 101 | | How do I submit a proposal for inclusion in next year’s proxy material? _______________ | 101 | | How do I submit a proposal or make a nomination at an Annual General Meeting? __ | 101 | | INFORMATION ABOUT THE ANNUAL GENERAL MEETING AND VOTING _______ | 102 | | OTHER MATTERS _____________________ | 107 | | EXHIBIT A: ASSURED GUARANTY LTD. 2024 LONG-TERM INCENTIVE PLAN ______ | 108 |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
OTHER CORPORATE GOVERNANCE HIGHLIGHTS •Our Board has a substantial majority of independent directors. •All members of the Audit, Compensation, Nominating and Governance, Finance, Environmental and Social Responsibility, and Risk Oversight Committees are independent directors. •Our Audit Committee recommends to our Board, which recommends to our shareholders, the annual appointment of our independent auditor. Each year our shareholders are asked to authorize our Board, acting through its Audit Committee, to determine the compensation of, and the scope of services performed by, our independent auditor. The Audit Committee also has the authority to retain outside advisors. •No member of our Audit Committee simultaneously serves on the audit committee of more than one other public company. •Our Compensation Committee has engaged a compensation consultant, Frederic W. Cook & Co., Inc., which we refer to as FW Cook, to assist it in evaluating the compensation of our CEO, based on corporate goals and objectives and, with the other independent directors, setting his compensation based on this evaluation. FW Cook has also assisted us in designing our executive compensation program. Our Compensation Committee has conducted an assessment of FW Cook’s independence and has determined that FW Cook does not have any conflict of interest. Our Nominating and Governance Committee also engages FW Cook to assist it in evaluating the compensation of our independent directors. •Our Executive Committee is tasked with exercising certain authority of our Board in the management of company affairs between regularly scheduled meetings of our Board when it is determined that a specified matter should not be postponed to the next scheduled meeting of our Board. Our Executive Committee did not meet in 2023. •We have adopted a Global Code of Ethics that sets forth basic principles to guide our day-to-day activities. The Global Code of Ethics addresses, among other things, conflicts of interest, gifts and entertainment, outside business activities, confidentiality, competition and anti-trust compliance, political and charitable contributions, compliance with laws and regulations, including with respect to insider trading, money laundering and sanctions, and reporting illegal or unethical behavior. The full text of our Global Code of Ethics is available on our website at www.assuredguaranty.com/governance. •In addition to AGL’s quarterly Board meetings, our Board has an annual business review meeting to assess specific areas of our Company’s operations and to learn about general trends affecting the financial guaranty and asset management industries. We also provide our directors with the opportunity to attend continuing education programs. •Our Environmental and Social Responsibility Committee focuses on environmental risks, particularly climate change related risks, and aspects of human capital management, such as diversity and inclusion, training and development, and employee engagement. •We adopted an Environmental Policy, a Climate Change Statement, a Diversity and Inclusion Policy and a Human Rights Statement; these policies and statements articulate our approach to environmental stewardship and social responsibility and guide our initiatives. Our Board reviews them annually and current versions are available on our website at www.assuredguaranty.com/governance. HOW ARE DIRECTORS NOMINATED? In accordance with its charter, our Nominating and Governance Committee identifies potential nominees for directors from various sources. Our Nominating and Governance Committee: •Reviews the qualifications of potential nominees to determine whether they might be good candidates for Board of Directors membership •Reviews the potential nominees’ judgment, experience, independence, understanding of our business or other related industries and such other factors as it determines are relevant in light of the needs of our Board of Directors and our Company •Selects qualified candidates and reviews its recommendations with our Board of Directors, which will decide whether to nominate the person for election to our Board of Directors at an Annual General Meeting of Shareholders (which we refer to as an Annual General Meeting). Between Annual General Meetings, our Board, upon the recommendation of our Nominating and Governance Committee, can fill vacancies on our Board by appointing a director to serve until the next Annual General Meeting. Our 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. Our Nominating and Governance Committee may also retain other advisors. We believe that diversity among members of our Board is an important consideration and is critical to our Board’s ability to perform its duties and various roles. Accordingly, in recommending nominees, our Board considers a wide range of individual perspectives in addition to diversity in professional experience and training. Our Corporate Governance Guidelines specify that our 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 our 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. Our Nominating and Governance Committee will consider Board candidates on the basis of a range of criteria, including broad-based business knowledge and contacts, and skills in risk and management oversight, 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. Our Nominating and Governance Committee annually reviews its own performance. In connection with such evaluation, our 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 accountants, lawyers, 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.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Nominating and Governance Committee will consider a shareholder’s recommendation for director but has no obligation to recommend such candidate for nomination by our Board of Directors. Assuming that appropriate biographical and background material is provided for candidates recommended by shareholders, our 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 our Nominating and Governance Committee recommends, and our 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 2024 Annual General Meeting. With respect to the 2025 Annual General Meeting, AGL must receive such written notice on or prior to February 1, 2025. Such notice must describe the nomination in sufficient detail to be summarized on the agenda for the meeting and must set forth: •the shareholder’s name as it appears in AGL’s books •a representation that the shareholder is a record holder of AGL’s Common Shares and intends to appear in person or by proxy at the meeting to present such proposal •the class and number of Common Shares beneficially owned by the shareholder •the name and address of any person to be nominated •a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons, naming such other person or persons, pursuant to which the nomination or nominations are to be made by the shareholder •such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the SEC’s proxy regulations •the consent of each nominee to serve as a director of AGL, if so elected COMMITTEES OF THE BOARD Our 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 our Board committees other than our 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 our Board. Mr. Buhl, Mr. Kenny and Mr. Leathes will be retiring from our Board effective upon the election of our directors at our Annual General Meeting of Shareholders on May 2, 2024.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Audit Committee | Chair: Bonnie L. Howard / 4 meetings during 2023 | | Other Audit Committee members: G. Lawrence Buhl, Thomas W. Jones, Courtney C. Shea, and (beginning February 2024) Mark C. Batten | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Audit Committee provides oversight of the integrity of our Company’s financial statements and financial reporting process, our compliance with legal and regulatory 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. Our 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) cybersecurity risks related to our financial systems (as part of its oversight of the management of such risks, in coordination with our Risk Oversight Committee's supervision of our Company's information technology, which we refer to as IT, and security risk management programs), (iv) workouts, emerging events, and counterparties, and (v) business continuity planning. Our Board has determined that each member of the Audit Committee satisfies the financial literacy requirements of the NYSE and is an audit committee expert as defined under Item 407(d) of the SEC’s Regulation S-K. For additional information about the qualifications of our Audit Committee members, see their respective biographies set forth in “Proposal No. 1: Election of Directors.”
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Compensation Committee | Chair: Thomas W. Jones / 5 meetings during 2023 | | Other Compensation Committee members: G. Lawrence Buhl, Bonnie L. Howard, Patrick W. Kenny, Yukiko Omura | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Compensation Committee has responsibility for evaluating the performance of 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, and determining executive compensation in conjunction with the independent directors. Our Compensation Committee also works with our Nominating and Governance Committee and our CEO on succession planning. Our Compensation Committee is responsible for the oversight of Company risks related to people, succession planning and compensation. Our Compensation Committee’s meetings included discussions with FW Cook to review executive compensation trends and comparison group compensation data and to evaluate the risk of our executive compensation program.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Environmental and Social Responsibility Committee | Chair: Alan J. Kreczko / 4 meetings during 2023 | | Other Environmental and Social Responsibility Committee members: Patrick W. Kenny, Simon W. Leathes, Yukiko Omura, Lorin P.T. Radtke | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Environmental and Social Responsibility Committee provides oversight and review of our Company’s significant strategies, policies and practices regarding environmental and social responsibility issues. Our Environmental and Social Responsibility Committee focuses on four principal subject areas: (i) environmental risks, including climate change related risks, opportunities, and stewardship; (ii) corporate social responsibility, including community engagement and corporate philanthropy; (iii) aspects of human capital management, including diversity and inclusion, training and development, and employee engagement; and (iv) related stakeholder engagement.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Finance Committee | Yukiko Omura / 4 meetings during 2023 | | Other Finance Committee members: Simon W. Leathes, Lorin P.T. Radtke, Courtney C. Shea, and (beginning February 2024) Mark C. Batten | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Finance Committee of our Board of Directors oversees management’s investment of our Company’s investment portfolio, including in alternative investments, and is responsible for oversight of Company risks related to capital, liquidity, investments, financial market conditions, foreign currency, and rating agencies. Our Finance Committee also oversees, and makes recommendations to our Board with respect to, our capital structure, dividends, financing arrangements, investment guidelines, potential alternative investments and any corporate development activities.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Nominating and Governance Committee | Chair: Francisco L. Borges / 4 meetings during 2023 | | Other Nominating and Governance Committee members: G. Lawrence Buhl, Bonnie L. Howard, Thomas W. Jones, Patrick W. Kenny, Alan J. Kreczko | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
The responsibilities of our Nominating and Governance Committee include identifying individuals qualified to become Board members, recommending director nominees to our Board and developing and recommending corporate governance guidelines, as well as the oversight of Company risks related to board qualification, corporate structure, governance, regulatory compliance and people. Our Nominating and Governance Committee also has responsibility to review and make recommendations to the full Board regarding director compensation. In addition to general corporate governance matters, our Nominating and Governance Committee assists our Board and our Board committees in their self-evaluations.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Risk Oversight Committee | Chair: Lorin P.T. Radtke / 4 meetings during 2023 | | Other Risk Oversight Committee members: Alan J. Kreczko, Simon W. Leathes, Courtney C. Shea, and (beginning February 2024) Mark C. Batten | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Risk Oversight Committee oversees management’s establishment and implementation of standards, controls, limits, guidelines and policies relating to risk appetite, risk assessment and enterprise risk management. Our Risk Oversight Committee focuses on the underwriting, surveillance and workout of credit risks as well as the assessment, management and oversight of other Company enterprise risks across our insurance and asset management segments and corporate division, including, but not limited to, financial, legal, operational (including IT, cybersecurity, data privacy, and outsourcing and vendor management) and other risks concerning our Company’s governance, reputation and ethical standards.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| The Executive Committee | Chair: Francisco L. Borges / No meetings during 2023 | | Other Executive Committee members: Dominic J. Frederico, Patrick W. Kenny, Simon W. Leathes, Yukiko Omura | |
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
Our Executive Committee was established to have, and to exercise, certain of the powers and authority of our Board in the management of the business and affairs of our Company between regularly scheduled meetings of our Board when, in the opinion of a quorum of the Executive Committee, a matter should not be postponed to the next scheduled meeting of our Board. Our 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 fee of $265,000 per year. We pay $145,000 of the fee in restricted shares and $120,000 of the fee in cash. A director also may elect to receive any or all of the cash portion of their annual fee (plus the additional cash amounts described below) in restricted shares. The restricted shares vest on the day immediately prior to the next Annual General Meeting following the grant of the shares. 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 our Board or (ii) the director terminates service on our Board as a result of such director’s death or disability, then the restricted shares 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 shares receive cash dividends and have voting rights. 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 fee (exclusive of committee fees). Once a director has reached the share ownership guideline, for so long as he or she serves on our 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. Mr. Batten, who joined our Board in February 2024, along with Mr. Radtke and Ms. Shea, who each joined our Board in May 2021, are accumulating Common Shares toward their ownership goals, while all our other independent director-nominees, who have served on our Board longer, meet their share ownership guidelines. In addition to the annual fee described above: •The chair of our Board receives a $225,000 annual fee in recognition of the strategic role he plays and the time commitment involved. The chair of our Board has elected not to receive any fees for serving as a member or chair of a Board committee. •The chair of each of the Environmental and Social Responsibility Committee, Finance Committee, Nominating and Governance Committee, and Risk Oversight Committee receives a $30,000 annual fee. •The chair of each of the Audit Committee and the Compensation Committee receives a $40,000 annual fee. •Neither the chair nor the other members of the Executive Committee receives an annual fee. •Members, other than the chair, of each other committee of our Board receive a $15,000 annual fee. The Company generally will not pay a fee for attending Board or committee meetings, although the chair of our Board has the discretion to pay attendance fees of $2,000 for extraordinary or special meetings. There were no extraordinary meetings of our Board in 2023. We do not pay a fee for attending meetings of the Executive Committee. In 2023, 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 2022, and which we refer to as the 2022 executive compensation comparison group. (Our current executive compensation comparison group, and how it changed from our 2022 executive compensation comparison group, is described under “Compensation Governance — Executive Compensation Comparison Group” below). FW Cook also looked at a broader market segment using data from FW Cook’s 2022 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 2022 executive compensation comparison group policy and best practice design as recognized by the proxy advisory firms and investors, noting: •the absence of meeting fees to simplify program administration and avoid the implication that there is additional pay for meeting attendance, which is an expected part of Board service •the use of committee member fees to differentiate compensation among directors based on workload •the vesting of annual restricted share awards over a one-year period, which protects against the possibility of director entrenchment •the payment of additional fees to our Board and committee leadership to recognize the additional responsibilities and time commitment associated with these roles •our limited benefits •a meaningful and robust share ownership guideline FW Cook also discussed with the Nominating and Governance Committee the time commitments and responsibilities of the Board's committee chairs and, based on that feedback, recommended $10,000 increases to the annual fee for the chairs of our Audit Committee and our Compensation Committee, to $40,000, beginning with the 2023-2024 period. All other non-executive director compensation has remained unchanged since the 2019-2020 period. Our Nominating and Governance Committee believes the aggregate cost of our independent director compensation program is appropriate due to the complexity of our business model, the time our directors spend keeping themselves up-to-date on our Company by discussing matters with our CEO and other key executives and our principal external advisors, by reading the reports and other materials that we send them regularly, and the need for our directors to travel to the U.K. four times per year for regularly scheduled meetings, and sometimes more often if necessary. DIRECTOR COMPENSATION The following table sets forth our 2023 independent director compensation, including the compensation for the directors’ committee assignments as of such date.
OTHER CORPORATE GOVERNANCE HIGHLIGHTS
| Name | Fees Earned or Paid in Cash | Share Awards(1) | All Other Compensation(2) | Total | | Mark C. Batten (3) | — | — | — | — | | Francisco L. Borges(4) | $345,000 | $145,000 | $16,406 | $506,406 | | G. Lawrence Buhl | $165,000 | $145,000 | $26,655 | $336,655 | | Bonnie L. Howard | $190,000 | $145,000 | $51,655 | $386,655 | | Thomas W. Jones | $190,000 | $145,000 | $30,897 | $365,897 | | Patrick W. Kenny(5) | $165,000 | $145,000 | $21,386 | $331,386 | | Alan J. Kreczko(6) | $180,000 | $145,000 | $34,369 | $359,369 | | Simon W. Leathes(7) | $165,000 | $145,000 | — | $310,000 | | Michelle McCloskey(8) | — | — | $2,546 | $2,546 | | Yukiko Omura | $180,000 | $145,000 | — | $325,000 | | Lorin P.T. Radtke | $180,000 | $145,000 | $27,546 | $352,546 | | Courtney C. Shea | $165,000 | $145,000 | $27,546 | $337,546 |
CD&A ROADMAP
| Other Named Executive Officer Compensation Decisions________________________________ | 59 | | Non-Financial Objectives and Achievements of the Other Named Executive Officers_______ | 59 | | Compensation Decisions for our Other Named Executive Officers_______________________ | 60 | | 2023 Executive Compensation Conclusion_____ | 62 | | Compensation Governance__________________ | 63 | | The Role of the Board’s Compensation Committee_____________________________ | 63 | | The Role of the Independent Consultants______ | 63 | | Executive Compensation Comparison Group___ | 63 | | Executive Officer Recoupment Policy and Related Forfeiture and Termination for Cause Provisions______________________________ | 64 | | Share Ownership Guidelines________________ | 65 | | Anti-Hedging Policy_______________________ | 65 | | Anti-Pledging Policy_______________________ | 66 | | Award Timing____________________________ | 66 | | Post-Employment Compensation _____________ | 67 | | Retirement Benefits_______________________ | 67 | | Severance______________________________ | 67 | | Change in Control Benefits_________________ | 67 | | Separation Arrangement___________________ | 67 | | Tax Treatment_____________________________ | 68 | | Non-GAAP Financial Measures_______________ | 68 |
2023 Results Against Financial Performance Targets
| Financial Performance Measures(1) | 2023 Targets | 2023 Results | Below Target | Above Target | | Core Operating Income per Diluted Share | $6.07 | $11.13 | | | | Core Operating Return on Equity | 6.5% | 11.6% | | | | Core Operating Shareholders’ Equity per Share | $99.42 | $106.47 | | | | Core Adjusted Book Value per Share | $150.96 | $155.92 | | | | PVP | $480 million | $404 million | | |
Snapshot of Our CEO’s 2023 Compensation
Snapshot of Our CEO’s 2023 Compensation For 2023, 91% of Mr. Frederico’s compensation constituted incentive compensation: 26% 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 65% 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 2024 to 2026. The allocation between his fixed and incentive compensation for the 2023 performance year remained similar to the previous year. Mr. Frederico received a compensation package for the 2023 performance year that was 15.5% higher than the one he received for the 2022 performance year, reflecting his personal leadership of the transformation of our asset management business with the completion of the milestone Sound Point transaction, our exceptional one-year total shareholder return of over 22%, our exceeding all but one of our five financial performance targets set by our Compensation Committee for 2023, some by a substantial amount and in large part due to his strategic leadership, and the achievement of non-financial strategic objectives that position us for future growth. The increase should also be viewed in the context of Mr. Frederico's compensation package for the 2022 performance year, which was 2.3% lower than the one he received for the 2021 performance year, and which decrease was driven largely by a 12.2% decrease in his performance-based cash incentive. •Mr. Frederico’s cash incentive compensation increased by 15.3% from the prior year, largely as a function of the financial performance goal scores awarded by our Compensation Committee. As a result of exceeding all but one of the five financial performance targets set by the Compensation Committee, in some instances by substantial amounts, the Compensation Committee awarded Mr. Frederico a weighted score on his financial performance targets of 78.8%, considerably above his score of 61.9% for 2022, when only two of the six financial performance targets were met. Our Compensation Committee awarded him a similar weighted score on his non-financial objectives for 2023, 61.1% compared to 59.4% for 2022. Mr. Frederico’s total achievement score for 2023 was 139.9%, substantially above his score of 121.3% for 2022, which increased his cash incentive compensation. While Mr. Frederico's cash incentive compensation increased from last year, it remains below the amounts he received in 2017, 2018 and 2019. •Our Compensation Committee considered the appropriate amount of long-term incentive equity compensation to award Mr. Frederico in recognition of our significant financial and strategic achievements, his personal leadership and strategic vision in pursuing the financial guaranty business globally beyond the U.S. public finance market, envisioning and then executing on our highly successful capital management program, establishing and then transforming our participation in the asset management business, and his leadership of our Company through a volatile fixed-income market in 2023. Under Mr. Frederico's leadership, our Company has enjoyed positive U.S. GAAP net income every year since he took us public in 2004, except 2007 (when the mark-to-market losses on credit default swaps were the primary reason for the loss), and twenty consecutive years of positive annual adjusted operating income*. In recognition of these accomplishments and our Compensation Committee’s strong desire that Mr. Frederico continue his visionary leadership as we continue to transform our Company consistent with his strategic vision into a more diversified financial services company with a more efficient use of capital and increased asset management-related earnings and increased investments in alternative assets, our Compensation Committee granted Mr. Frederico long-term equity compensation with a target nominal value of $8,750,000, an 18.2% increase from his grant for the 2022 performance year. Mr. Frederico’s compensation package for 2021, 2022, and 2023 were composed of the following:
Snapshot of Our CEO’s 2023 Compensation
| ■ | Performance-Based Equity1 | | ■ | Time-Based Equity1 | | ■ | Performance-Based Cash Incentive | | ■ | Fixed Compensation-Base Salary |
Overview of Philosophy and Design
| Principal Elements of Executive Compensation Package | Purpose | | Base Salary | Based on responsibilities, skill set and experience, and market measures | | Cash Incentive Compensation | Cash reward for performance against annual financial performance targets and progress against strategic non-financial objectives that we expect to drive our growth over the medium- to long-term | | Equity Incentives | 60% in PSUs, that may be earned over a 3-year performance period based on performance targets, and which vest at the end of the 3-year performance period if particular performance targets are achieved, with half of the PSUs (or 30% of the long-term equity incentive) being based on growth in our Core Adjusted Book Value per share, and half of the PSUs (or 30% of the long-term equity incentive) being based on our TSR relative to the 55th percentile of the Russell Midcap Financial Services Index 40% in restricted share units, which we refer to as RSUs, that cliff vest at the end of a 3-year period |
2023 Financial Performance Measures
2023 Financial Performance Measures
2023 Financial Performance Measures
| Core operating income per diluted share | Enables us to evaluate the amount of income on a per share basis we are generating in our business without certain items, such as non-economic fluctuations and movements in fair value, foreign exchange movements related to long dated receivables and payables, and other adjustments, as well as removes the impact of consolidating VIEs. | | Core operating ROE | Represents core operating income for a specified period divided by the average of core operating shareholders’ equity at the beginning and the end of that period. This measure enables us to evaluate our return on equity, excluding items such as non-economic movements in fair value. | | Core operating shareholders’ equity per share | Presents our equity excluding non-economic fair value adjustments as well as the impact of consolidating VIEs, on a per share basis. Core operating shareholders’ equity per share is the basis of the calculation of core adjusted book value, which we refer to as Core ABV, per share, as described below. | | Core ABV per share | Reflects our core operating shareholders’ equity, plus deferred premium revenue on financial guaranty contracts in excess of expected losses to be expensed, plus future estimated revenues from contracts other than financial guaranty insurance contracts (such as specialty insurance contracts and credit derivatives), less deferred acquisition costs, on a per share basis. This measure enables us to measure our intrinsic value, excluding our franchise value. | | PVP | Represents the estimated present value of new business production in our insurance segment. PVP takes into account upfront premiums and the present value of estimated future installment premiums on all new contracts written in a reporting period. |
2023 Financial Performance Measures
At the beginning of a performance year, our Compensation Committee assigns each executive officer 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 2023 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 executive officer, 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. For each financial performance measure, our Compensation Committee has discretion to assign an achievement score of up to 200% for outstanding performance and down to 0% for performance below target, based on its view of the level of achievement attained for such financial performance target; the same scoring system applies for the non-financial objectives, taken as a whole. With the weightings our 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, our 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. Our 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. As a result, Mr. Frederico's maximum short-term incentive opportunity has remained unchanged since the 2018 performance year. Because there is a maximum score of 200% and a weighting of 13.4% for each financial performance measure for our executive officers, there is a maximum score for each performance measure of 26.8% for those officers, no matter how high the performance measure result is. 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. For the 2023 performance year, there was no instance where the 2023 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. We established a substantial deferred tax asset related to a new Bermuda tax law enacted in December 2023; the deferred tax asset had a substantial positive impact on certain of the financial performance measures for the 2023 performance year. The Compensation Committee could not have anticipated the benefit associated with the establishment of that deferred tax asset when it set the financial performance goals for 2023, and the resulting impact on the financial performance measures did not reflect any particular efforts of the executive officers. Consequently, the Compensation Committee chose to exclude the benefit from the establishment of the deferred tax asset when it calculated the achievement score for the financial performance measures for the 2023 performance year. Had the Compensation Committee not chosen to exclude that benefit, the achievement score for the financial performance measures, and consequently the cash incentive amounts awarded, would have been higher than they were. Setting Financial Performance Targets Our Compensation Committee selected in 2015 the five financial performance measures that we still use based on the unique earnings model of the financial guaranty industry. Our 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, our Compensation Committee added a sixth financial performance measure, based on growth in third-party assets under management, to appropriately incentivize our executives to develop and grow our then asset management business. For the 2023 performance year, we eliminated the sixth financial performance measure based on growth in third-party assets under management in light of the Sound Point transaction (which transformed our participation in the asset management business to owning approximately 30% of Sound Point, without administrative involvement in Sound Point's day-to-day decisions for its business, operations, management or policies). Our 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 our 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.
2023 Financial Performance Measures
| Core Operating Income per Diluted Share and Core Operating Return on Equity. Our Compensation Committee set the financial performance targets for core operating income per diluted share and core operating return on equity for the 2023 performance year materially higher than the 2022 actual results. These targets were particularly challenging when considering the unique earnings model of the financial guaranty insurance industry. When a financial guarantor writes a new financial guaranty policy, it does not earn the full amount of the premium immediately; rather, when a policy is written, the upfront premium it receives (plus the present value of future premiums) is recorded on its balance sheet as the unearned premium reserve, which we refer to as deferred premium revenue (reported as a component of unearned premiums reserve, which we refer to as UPR). This UPR is earned over the term of the insured obligation, often as long as 20, 30 or even 40 years. For example, only approximately 5% of the premiums we earned in 2023 related to new financial guaranty policies we wrote in 2023, and the rest was earned from our previously established deferred premium revenue. Because the volume and pricing of new financial guaranty business written in a particular year has only a small impact on premium earnings for that year, most of our operating income from our core financial guaranty business may be forecast based on projections with respect to the very significant deferred premium revenue that we earn as our insured portfolio amortizes. Despite the relative predictability of the contribution of premium earnings from our financial guaranty business to our core operating income per diluted share and core operating return on equity, we consider the financial performance goals we set for these measures to be challenging due to potential uncertainties in the broader market and environment. Those uncertainties include unexpected loss development, level of refunding activity, unexpected mark-to-market movements of alternative investments, and unexpected changes to reinvestment rates. In addition, variability of our share price and availability of funds for share repurchases may add to the challenges of reaching these goals. |
2023 Financial Performance Measures
| Core Operating Shareholders’ Equity Per Share and Core Adjusted Book Value Per Share. Our Compensation Committee also wants to encourage our senior leadership team to build intrinsic value in our Company over time for our shareholders, so our Compensation Committee sets targets for core operating shareholders’ equity per share and core adjusted book value per share. Our Compensation Committee believes these measures best capture the long-term value we are building for our shareholders and that growth in these measures will eventually result in growth in the price of our Common Shares. Our Compensation Committee believes that core adjusted book value per share, in particular, is such an important measure of the intrinsic value we are building for our shareholders that our Compensation Committee has made this measure a component of both our short-term and long-term incentive programs. Our Compensation Committee believes that this will motivate our senior leadership team to focus on growth in this measure in both the short and long term, and that eventually growth in the price of our Common Shares will follow. |
2023 Financial Performance Measures
| PVP. Our annual business plan for 2023 challenged our senior leadership team to originate more financial guaranty business in 2023 than the financial guaranty business we originated in 2022. Our most direct measurement of new insurance business origination is PVP. We set our 2023 PVP target 28% higher than our 2022 actual results. |
2023 Financial Performance Measures
Calculating Cash Incentive Compensation Based on weighted achievement scores for the financial performance targets and the individual non-financial objectives for each executive officer, the individual payouts of the cash incentive for 2023 were calculated as follows:
2023 Financial Performance Measures
| Annual Individual Target Cash Incentive Amount | | | Annual Achievement Score (a percentage from 0% to 200%) | | | | | Annual Cash Incentive Payout | | ( | 2023 Base SalaryX | 2023 Individual Target Cash Incentive Multiple)X | ( | 2023 Financial Target Achievement Score (weighted 67%) | + | 2023 Non-Financial Objective Achievement Score (weighted 33%)) | = | 2023 Cash Incentive Payout |
2023 Financial Performance Measures
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. All five of the financial performance measurements applicable in both periods have improved, as reflected in the table below.
2023 Financial Performance Measures
| FINANCIAL PERFORMANCE GOALS | 2014 Results | 2023 Results | | Core Operating Income per Diluted Share | $2.83 | $11.13 | | Core Operating Return on Equity | 8.1% | 11.6% | | Core Operating Shareholders’ Equity per Share | $37.48 | $106.47 | | Core Adjusted Book Value per Share | $53.78 | $155.92 | | PVP | $172 million | $404 million |
2023 Financial Performance Measures
The progress we have made on these fronts is the result of the leadership of Mr. Frederico and the efforts of the rest 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 the other executive officers, although it has fine-tuned its methodology since then. Long-Term Equity Incentives 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 2023 performance year, our Compensation Committee determined the amount of equity incentive compensation in February 2024. 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 vest at the end of the 3-year performance period in a number of shares dependent on whether 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.” For the 2024 grant with respect to the 2023 performance year, the proportion of the long-term equity incentive comprising performance-based PSUs was again 60%, with the remainder in time-based RSUs. Performance Restricted Share Units. Each performance restricted share unit, or PSU, represents a contingent right to receive up to a certain number of our Common Shares as described below under “Incentive Plans — Assured Guaranty Ltd. 2004 Long-Term Incentive Plan”. Our Compensation Committee awards PSUs with the intent of aligning executive pay with our Company’s performance. •PSUs tied to growth in our Core ABV per share over a three-year period, which we refer to as ABV PSUs; and •PSUs tied to our TSR over a three-year period relative to the TSR of the 55th percentile of the Russell Midcap Financial Services Index, which we refer to as Relative TSR PSUs. This structure has been in place since 2019 and our Compensation Committee maintained the same basic structure for the February 2024 grants. ABV PSUs 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.
2023 Financial Performance Measures
| Each ABV PSU represents the right to receive up to two of our Common Shares at the end of a three-year performance period, which runs from January 1 of the year of the grant to December 31 three years later, depending on the growth in Core ABV per share over the three-year performance period. •The target growth rate is an aggregate of 15% over that three-year period, for which the recipient earns one Common Share for each ABV PSU. •At 80% of the target growth (or 12%), which we refer to as the threshold, the recipient earns one-half of a Common Share for each ABV PSU; for growth rates below that amount, the recipient earns no Common Shares. •At 120% of the target growth (or 18%) or above, which we refer to as the maximum, the recipient earns two Common Shares for each ABV PSU. For Core ABV per share growth rates between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each ABV PSU is based on straight-line interpolation. |
2023 Financial Performance Measures
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 (expressed as a growth rate) remain aligned with our long range plan and are unchanged from last year. Relative TSR PSUs 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, our Compensation Committee decided that a relative measure of TSR was most appropriate.
2023 Financial Performance Measures
| Each Relative TSR PSU represents the right to receive up to 2.5 (for extraordinary performance at the 95th percentile) of our Common Shares at the end of a three-year performance period, which runs from the grant date of the award in February through the day before the third anniversary of that date, depending on the performance of our TSR over that three-year period relative to the TSR of the Russell Midcap Financial Services Index, which we refer to as the Index. The performance period (which used to run from January 1 of the grant year to December 31 three years later) was changed beginning with the February 2023 grants for the 2022 performance year, to better align the U.S. GAAP value of the TSR PSUs with their target values. •The target Company TSR for that period is the 55th percentile of the Index, for which the recipient earns one Common Share for each Relative TSR PSU. •At the 25th percentile of the Index, which we refer to as the threshold, the recipient earns one-half of a Common Share for each Relative TSR PSU; for Company TSRs below that level, the recipient earns no Common Shares. •A Company TSR at the 95th percentile of the Index, which we refer to as the maximum, or above earns the recipient 2.5 Common Shares for each Relative TSR PSU. For Company TSRs between the threshold and the target and between the target and the maximum, the amount of our Common Shares earned for each Relative TSR PSU is based on straight-line interpolation. Our Compensation Committee adopted the following additional restrictions on the Relative TSR PSUs: •The number of Common Shares that can be earned is capped at one share per Relative TSR PSU if the Company TSR is negative, even if above the 55th percentile. •Common Shares earned pursuant to the Relative TSR PSUs remain restricted until one year after they vest. |
2023 Financial Performance Measures
Our Compensation Committee selected the Russell Midcap Financial Services Index as the best available comparison when it established the Relative TSR PSUs in February 2019. Our Compensation Committee believed that aspects of our business are comparable to aspects of various financial services companies, and so determined that the best benchmark for our TSR was a broad index of somewhat similarly-sized financial services companies. Our Compensation Committee made this determination after considering and rejecting a number of other options: •Only one other financial guarantor continues to write new business, and that company is not publicly traded, so a peer group of financial guarantors is not available. •While analysts sometimes categorize us with property and casualty insurance companies, our Compensation Committee believes that factors impacting the performance of property and casualty insurance companies are unlikely to impact our business in the same way, particularly given the unique long-term nature of our financial guaranty insurance business and the fact that the required accounting treatment and operations of a financial guaranty insurer are distinct from property and casualty and other insurance product lines. •While the current executive compensation comparison group comprises similarly-sized companies in businesses somewhat similar to our business, many of the companies in that group are mortgage finance and property and casualty insurance and reinsurance companies and our Compensation Committee does not believe that group is an appropriate benchmark for our TSR. In late 2021, our Compensation Committee considered whether, given changes in the Russell Midcap Financial Services Index since 2019, it should change the reference index used for the Relative TSR PSUs. It chose not to make any changes. Restricted Share Units
2023 Financial Performance Measures
| Each restricted share unit represents a right to receive one of our Common Shares at the end of a three-year vesting period as described below under “Incentive Plans — Assured Guaranty Ltd. 2004 Long-Term Incentive Plan”. |
2023 Financial Performance Measures
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. Performance Retention Awards Performance Retention Awards, which we refer to as PRA, are a form of incentive compensation we award under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan. Our executive officers do not receive PRA for their achievements as executive officers, but we have included a description of PRA in this proxy statement because a person who recently became an executive officer may have outstanding PRA grants from the years prior to them becoming an executive officer. The principal amount of each PRA grant is divided into three installments — 25%, 25%, and 50% of the grant. The performance period relating to each installment is set out in the terms of the grant. The payment for each installment is the product of: •Principal amount of award •Portion of principal associated with such installment (i.e., 25%, 25%, or 50%) •50% of the sum of 1 and the percentage change in the core ABV per share for the relevant performance period •50% of the sum of 1 and the core operating ROE for the relevant performance period Of the named executive officers, Ms. Horn received a cash distribution in March 2024 for the installments from her PRA granted in February 2021 and 2022 that vested on December 31, 2023. Such cash distribution is set forth in footnote 2 to the Summary Compensation Table. Those PRA payouts are a function of decisions made in February 2021 and 2022 regarding the amount of PRA to award Ms. Horn for her achievements during the 2020 and 2021 performance years, before she became an executive officer in 2022, as well as growth in core ABV per share and the core operating ROE during the relevant performance periods. In March 2025, Ms. Horn will receive her last PRA payout from her last PRA grant in February 2022.
Cash Incentive
Cash Incentive To determine Mr. Frederico’s cash incentive, as discussed above, our 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.” Setting Mr. Frederico’s 2023 Financial Performance Targets In February 2023, our Compensation Committee established targets for five financial performance measurements for Mr. Frederico (and for each other executive officer) for the 2023 performance year. The financial performance targets were based on the business plan that our Board of Directors originally reviewed in November 2022, then updated and approved in February 2023, 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 measures, and why our Compensation Committee considers them to be important in assessing our Company and the performance of each executive officer. All five targets are based on non-GAAP financial measures. As mentioned above, as a result of the transformation of our participation in the asset management market through the Sound Point transaction, our Compensation Committee eliminated the financial performance target relating to growth in third-party assets under management that was used in prior years. Our Compensation Committee viewed all of the 2023 targets it set as challenging in light of then current market conditions and the nature of our business model. Our Compensation Committee set all five of the 2023 targets for the financial performance measurements above the 2022 actual results. Mr. Frederico’s 2023 Financial Performance Target Scores In 2023, we exceeded all but one of the five 2023 targets for the financial performance measures, and in the fifth instance, PVP, we improved over last year's result. In the four instances where we exceeded the 2023 target, we would have done so even without the benefit from the establishment of a deferred tax asset related to a new Bermuda tax law enacted in December 2023. Since the benefit from the establishment of such deferred tax asset could not have been anticipated by our Compensation Committee when it set the financial performance targets in February 2023, it chose to exclude the benefit when determining the achievement score to award for the financial performance measures (since the positive impact of the deferred tax asset on the financial performance measures did not reflect any particular efforts of the senior leadership team). The achievement score would have been higher if the Compensation Committee had chosen not to exclude the benefit of the deferred tax asset. The financial performance measures are explained in more detail above under “Executive Compensation Program Structure and Process — Components of Our Executive Compensation Program — Cash Incentive Compensation”. •Core operating income per share of $11.13 was nearly 83% above our target and 163% above our actual 2022 results and the highest in the history of our Company. •Core operating ROE of 11.6% was 78% above our target and nearly 142% above our actual 2022 results. •Core operating shareholders’ equity per share reached its highest level in our history, increasing nearly 14% from year-end 2022, and exceeding our goal by more than 7%. •Core adjusted book value, which we refer to as Core ABV, per share increased by nearly 10% from year-end 2022, exceeded our goal by more than 3% and reached its highest level in our history. •The $404 million of PVP we produced was nearly 16% below our goal but a nearly 8% increase from our achievement in 2022. Given the elevated interest rate environment and continued volatility in the fixed-income market generally, as well as the reduction of new issuance in the U.S. public finance market, the primary market for our financial guaranty insurance product, our Compensation Committee determined this to be a laudable result and awarded a score of 84%. We achieved these results despite an elevated interest rate environment and continued volatility in the fixed-income markets for much of the year. Continued interest rate hikes initiated in the U.S. through the first half of the year contributed to lower issuance of new bonds in the U.S. public finance market in 2023 than we had projected when setting our PVP target, as well a reduction in secondary market opportunities in that same market, reducing opportunities for us in the most important market for our insurance product. We also continued to face pricing competition in certain segments of that same U.S. public finance financial guaranty market from another financial guaranty insurer that serves a smaller portion of the market than we serve. Our Compensation Committee assigned Mr. Frederico achievement scores for his achievements (excluding the benefit of establishing a deferred tax asset related to the new Bermuda tax law) 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 78.8%:
Summary 2023 CEO Performance Scorecard
(1) The compensation Committee's calculation of Mr. Frederico's financial performance measurement achievement score excludes the benefit to the performance measures from the establishment of a deferred tax asset in 2023 related to a new Bermuda tax law that could not have been anticipated by the Compensation Committee when it set the targets. In reviewing Mr. Frederico’s 2023 performance scorecard, our Compensation Committee determined that he had very strong performance in a challenging year. In particular, our Compensation Committee found that Mr. Frederico should be recognized for his personal leadership of our most significant accomplishment in the transformation of our asset management strategy through the contribution of substantially all of our asset management business to Sound Point for an approximately 30% interest in the combined entity, significantly advancing our strategic goals for our asset management business, our exceptional total one-year shareholder return of over 22%, and exceeding all but one of our five financial performance targets set by our Compensation Committee for 2023, some of them by a very significant amount. The Compensation Committee also considered the scorecard in light of the 12.2% reduction in Mr. Frederico's cash incentive compensation for the 2022 performance year. Given this significant reduction for the prior performance year, the closing of the transformational milestone Sound Point transaction, and the substantial outperformance of all but one of the five financial performance targets for the 2023 performance year, the Compensation Committee concluded that it was appropriate that Mr. Frederico's short-term cash incentive payment increase appreciably. Based on Mr. Frederico’s achievements, our Compensation Committee awarded him a total achievement score of 139.9% for the 2023 performance year, 15.3% above his achievement score of 121.3% for the 2022 performance year. Applying this achievement score to his Individual Target Cash Incentive Amount resulted in a cash incentive award of $3,496,050. This was $464,050 (or 15.3%) more than the $3,032,000 awarded to Mr. Frederico for the 2022 performance year, but still $230,950 less than the $3,727,000 awarded to him for the 2019 performance year. The Compensation Committee noted that Mr. Frederico's cash incentive compensation for the 2023 performance year remained below the amounts he received for the 2017, 2018 and 2019 performance years. * Our Compensation Committee has discretion to assign a total achievement score of up to 200% against our CEO's financial performance targets and non-financial objectives. Since the Individual Target Cash Incentive Multiple for our CEO in 2.0x, his maximum annual cash incentive opportunity is 4x his base salary. In February 2019 the Compensation Committee reduced the CEO's Individual Target Cash Incentive Multiple from 2.5x to 2.0x, effective for the 2018 performance year, and has maintained both his base salary and his multiple at the same level since 2018, so his maximum annual cash incentive opportunity has remained at the same level since the 2018 performance year.
Equity Compensation
Equity Compensation Our Compensation Committee awarded all of Mr. Frederico’s long-term incentive compensation in the form of PSUs and RSUs. Mr. Frederico's $8,750,000 target nominal amount of long-term equity constitutes a 18.2% increase over his target nominal amount for the prior year and reflects the extraordinary value our Compensation Committee believes our Company garners from Mr. Frederico's long-term strategic vision and leadership as demonstrated in several aspects of our very successful 2023, and our Compensation Committee's desire to properly incent Mr. Frederico to continue his long-term leadership. Our most important accomplishment of the year, the Sound Point transaction, was an important milestone in fulfilling of Mr. Frederico's strategic vision to participate in the asset management industry, which began with our purchase of BlueMountain in 2019. The Sound Point transaction, which was the result of a strategic change in direction by Mr. Frederico and was structured, negotiated and successfully closed through his personal efforts, has allowed us to immediately establish a meaningful presence in the asset management industry and to participate in a profitable asset management business with the scale we believe necessary to position us for further success in the future. Our achievement of PVP* of over $400 million for only the second time since 2009 (excluding the PVP impact of our 2018 Syncora Guarantee Inc. reinsurance transaction) despite a relative lack of new issuance in our principal market, U.S. public finance, was due in large part to Mr. Frederico's strategic decision fifteen years ago to also pursue financial guaranty business in markets other than the U.S. public finance market. Moreover, Mr. Frederico continues to execute the successful capital management program he envisioned and initiated eleven years ago. In all of these respects, our success this year was very much the result of Mr. Frederico's long-term strategic vision and his successful execution of that vision. Our Compensation Committee further believes that our one- and five-year TSR demonstrates the confidence of the equity markets in the long-term trajectory of our Company, and that Mr. Frederico should be rewarded for his leadership over these periods and provided with an appropriate incentive to continue that leadership. The Compensation Committee took note of our Company's long-term success under Mr. Frederico's leadership. We have enjoyed positive U.S. GAAP net income every year since he took us public in 2004, except in 2007 (when the mark-to-market losses on credit default swaps were the primary reason for the loss), and twenty consecutive years of positive annual adjusted operating income*. We have also experienced strong long-term growth in our per share value measures over those twenty years under Mr. Frederico's leadership, with our most recent five years shown in the table below: * Adjusted operating income and PVP are non-GAAP financial measures. An explanation of these measures, which are considered when setting executive compensation, and a reconciliation to the most comparable U.S. GAAP measures, may be found on pages 95-99 of our Annual Report on Form 10-K for the year ended December 31, 2023. In addition, please refer to the section entitled “Forward Looking Statements” following the cover of that Annual Report on Form 10-K. The following table sets forth the target nominal amount of long-term incentive compensation our Compensation Committee awarded Mr. Frederico on February 21, 2024, the grant date. Our Compensation Committee determined the number of PSUs and RSUs to award Mr. Frederico by converting the target nominal amount of the award using $79.37, which was the average closing price on the NYSE of our Common Shares over the 40 consecutive trading days ending on February 21, 2024. When we prepare the Summary Compensation Table, we report the value of the grants using U.S. GAAP, in accordance with the SEC’s rules. •Under U.S. GAAP, the value of an ABV PSU as of February 21, 2024 was determined to be $84.84. This value is based on the closing price of our Common Shares on that date, which U.S. GAAP allows as a practical expedient to value grants with complicated features, such as in this case the estimated growth rate of our Company’s Core ABV per share. •Under U.S. GAAP, the value of a Relative TSR PSU on February 21, 2024 was $104.27. This value was computed using a Monte-Carlo simulation model taking into account the historical relationship of our TSR and the TSR of the Index. We engaged Aon to provide this computation for us. •Under U.S. GAAP, the value of an RSU was $84.84, based our Common Share closing price on February 21, 2024. Because the price of our Common Shares can be volatile, our Compensation Committee since 2012 has determined the number of shares to be granted to members of our senior leadership team by dividing the target nominal value of the equity it wished to award by the average closing price on the NYSE of our Common Shares over the 40 consecutive trading days ending on the grant date. As described above, U.S. GAAP valuations are based on the price of our Common Shares on the grant date. So, when the price of our Common Shares is higher on the grant date than the average price over the 40 previous consecutive trading days, the U.S. GAAP value will exceed our Compensation Committee’s target nominal value, as was the case this year, as well as last year. Similarly, when the price of our Common Shares is lower on the grant date than the average price over the 40 previous consecutive trading days, the U.S. GAAP value will be less than our Compensation Committee’s target nominal value, as was the case in 2020. Our Compensation Committee believes solely using the average closing price over 40 consecutive trading days approach to sizing its long-term equity incentive grants is the fairest approach to use in light of the volatility of the price of our Common Shares. The aggregate value of Mr. Frederico’s February 2024 long-term equity incentive grants under U.S. GAAP is set forth below.
Equity Compensation
| | Compensation Committee Target Nominal Value | Equity Granted (Shares) | U.S. GAAP Value | | ABV PSUs | $2,625,000 | 33,073 | $2,805,913 | | Relative TSR PSUs | $2,625,000 | 33,073 | $3,448,522 | | RSUs | $3,500,000 | 44,097 | $3,741,189 | | TOTAL | $8,750,000 | 110,243 | $9,995,624 |
Compensation Decisions for our Other Named Executive Officers
| | (2023 Base SalaryX | 2023 Individual Target Cash Incentive Multiple)X | (Financial Performance Measurement Achievement Score (weighted 67%) | + | Individual Non- Financial Objective Achievement Score (weighted 33%)) | = | 2023 Cash Incentive Payout | | Robert A. Bailenson | $800,000 | 2.00x | 78.8% | | 59.4% | | $2,211,072 | | Ling Chow | $600,000 | 2.00x | 78.8% | | 56.1% | | $1,618,704 | | Stephen Donnarumma | $525,000 | 2.00x | 78.8% | | 56.1% | | $1,416,366 | | Holly Horn | $500,000 | 2.00x | 78.8% | | 49.5% | | $1,282,920 |
Compensation Decisions for our Other Named Executive Officers
In general, our Compensation Committee awards 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 for each of our other names executive officers reflects our Compensation Committee’s desire that each of them 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. Our Compensation Committee considered FW Cook’s analysis of the compensation paid to named executive officers in 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 2022 executive compensation comparison group, is described under “Compensation Governance — Executive Compensation Comparison Group” below). According to FW Cook, for the 2022 performance year, which is the most recent data available, the target total direct compensation for our named executive officers (excluding Mr. Frederico) ranked between the median and 75th percentile on average, ranging from near median to above the 75th percentile, of amounts for the named executive officers of our 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 2022 performance year ranked between the median and 75th percentile of our executive compensation comparison group, reflecting our non-equity incentive payouts for 2022 performance, which were aligned with our 2022 performance relative to our key business goals and strategies, as well as our strong financial performance for that period. For the 2023 performance year, our one-year TSR of 22.5% ranked at the 53rd percentile, and our three-year TSR of 35.9% (on an annualized basis) ranked at the 100th 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. In summary, our Compensation Committee approved the following compensation decisions for the named executive officers other than Mr. Frederico for the 2023 performance year:
Compensation Decisions for our Other Named Executive Officers
(1) These base salaries were set by our Compensation Committee in February 2023. (2) The long-term equity incentive awards were allocated similarly to Mr. Frederico’s, and comprised 30% ABV PSUs, 30% Relative TSR PSUs and 40% RSUs. The U.S. GAAP values of the awards are: Mr. Bailenson, $2,627,314; Ms. Chow, $1,827,887; Mr. Donnarumma, $1,028,186; and Ms. Horn, $913,944.
The Role of the Independent Consultants
The Role of the Independent Consultants For more than fifteen years, including in 2023, our 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, our Nominating and Governance Committee also engages FW Cook to conduct a comprehensive review of the compensation package for our independent directors; FW Cook last undertook such a comprehensive review in 2023. In 2023, FW Cook’s work for our 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, assisting with the implementation of the Pay Versus Performance disclosure rules and incentive-based compensation recovery (clawback) provisions mandated by the Dodd-Frank Act, and updating our Compensation Committee with respect to evolving governance trends. Our 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 2023 affirming factors relevant to assessing FW Cook’s independence. Our 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 our 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. Our Compensation Committee also engaged Aon as a compensation consultant several times after 2018 to consider changes in the long-term incentive program, most recently in 2023 when it chose to change the performance period of the Relative TSR PSUs as described above in “Compensation Discussion and Analysis — CEO Performance Review — Equity Compensation”. Our 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 2023 affirming factors relevant to assessing Aon's independence. Our Compensation Committee discussed the content of the letter and concluded that Aon's work did not raise any independence or conflict of interest issues.
Award Timing
Award Timing Our Compensation Committee meets during our February board meeting to make executive compensation decisions for the previous year’s performance and to make its compensation recommendations to the other directors. After consulting with our Board, our Compensation Committee approves salary increases (if any), cash incentive compensation, and long-term equity incentive awards for each member of our senior leadership team. Calculations of the number of PSUs and RSUs awarded to each member of our senior leadership team are made as of the date our Compensation Committee consults with our Board and approves the compensation packages for our senior leadership team, which occurs several days prior to the day we file with the SEC our Annual Report on Form 10-K for the previous calendar year. We have consistently followed this timing for many years. The number of units granted is calculated by dividing such value by the average closing price on the NYSE of a Common Share over the 40 consecutive trading days ending on the date of grant. Payments of cash incentives are not made until after we file with the SEC our Annual Report on Form 10-K for the previous calendar year.
Retirement Benefits
| Benefit Under Defined Contribution Plans | Description | | Core contribution | We contribute 7% of each employee’s salary and non-equity incentive payment or cash bonus compensation, which we refer to as eligible compensation, on the portion made to our tax-qualified plan, and 6% on the portion made to our nonqualified supplemental employee retirement plans. | | Company match | We match 100% of each employee’s contribution, up to 7% of eligible compensation on the portion made to our tax-qualified plan, and 6% on the portion made to our nonqualified supplemental employee retirement plans. |
Severance
Severance Under our severance plan for members of our senior leadership team (and some others), following the executive’s involuntary termination without cause or voluntary termination for good reason and subject to the executive signing a release of claims, the executive will receive a lump-sum payment in an amount equal to one year’s salary plus their average cash incentive amount over the preceding three-year period, plus a pro-rata annual cash incentive amount for the year of termination, and an amount equal to one year of medical and dental premiums. The executive’s receipt of severance benefits is subject to their compliance with non-competition, non-solicitation, and confidentiality restrictions during their employment and for a period of one year following termination of employment. We, in our discretion, may choose to pay one year of base salary to an executive who terminates employment for a reason other than involuntary termination without cause or voluntary termination for good reason, in which case the executive will also be subject to non-competition, non-solicitation, and confidentiality restrictions following their termination of employment.
Change In Control Benefits
Change In Control Benefits We provide change in control benefits to encourage members of our senior leadership team to consider the best interests of shareholders by mitigating any concerns about their own personal financial well-being in the face of a change in control of our Company. In the event of a change in control: •Long-term incentive awards will vest only upon certain terminations of employment following a change in control (double-trigger) •Such awards will vest upon a change in control (single-trigger) if the acquirer does not assume the awards •We do not provide excise tax reimbursements and gross-up payments in the case of a change in control Detailed information is provided below under “Potential Payments Upon Termination or Change in Control.”
ASSURED GUARANTY LTD. 2004 LONG-TERM INCENTIVE PLAN
| Year | Summary Compensation Table Total for PEO(1) | Compensation Actually Paid to PEO(1)(2) | Average Summary Compensation Table Total for non-PEO Named Executive Officers(1) | Average Compensation Actually Paid to non-PEO Named Executive Officers(1)(2) | Value of Initial Fixed $100 Investment Based on: | | Net Income (millions)(5) | ABV per Share(6) | | | | | | | Total Shareholder Return(3) | Peer Group Total Shareholder Return(4) | | | | 2023 | $13,477,512 | $26,808,821 | $3,765,333 | $5,379,798 | $166 | $141 | $761 | $156 | | 2022 | $13,606,009 | $28,885,520 | $3,662,609 | $6,060,272 | $135 | $125 | $137 | $142 | | 2021 | $14,536,062 | $23,817,693 | $4,277,028 | $5,930,256 | $107 | $143 | $419 | $131 | | 2020 | $10,876,524 | $4,540,198 | $3,346,954 | $2,208,833 | $66 | $105 | $368 | $115 |
Authorized Securities under Equity Compensation Plans
Authorized Securities under Equity Compensation Plans See "Equity Compensation Plans Information" section. PROPOSAL NO. 4: APPOINTMENT OF INDEPENDENT AUDITOR The appointment of our independent auditor is approved annually by our shareholders, who also annually authorize our Board of Directors, acting through its Audit Committee, to set the remuneration for our independent auditor. Proposal No. 4 is Item 4 on the proxy card. At the recommendation of the Audit Committee, our Board of Directors recommends that shareholders appoint PricewaterhouseCoopers LLP as our independent auditor for the year ending December 31, 2024, and that shareholders authorize our Board of Directors, acting through its Audit Committee, to set the fees for our independent auditor. In making its recommendation with respect to the engagement of our independent auditor, the Audit Committee reviewed both the audit scope and estimated fees for professional services for the coming year. PwC served as our independent auditor for the year ended December 31, 2023. Our audited financial statements for the year ended December 31, 2023 will be presented at the Annual General Meeting. Representatives of PwC will attend the Annual General Meeting and will have an opportunity to make a statement if they wish. They will also be available to answer questions at the meeting.
Authorized Securities under Equity Compensation Plans
| • | Our board of directors and the Audit Committee recommend that you vote “FOR” the appointment of PwC as the Company’s independent auditor for the year ending December 31, 2023, and the authorization of the board of directors, acting through its Audit Committee, to set the fees for the independent auditor. |
Authorized Securities under Equity Compensation Plans
ASSESSMENT OF 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 our financial reporting practices, including satisfying obligations imposed by Section 404 of the Sarbanes Oxley Act of 2002, and the preparation of the financial statements of our Company. The Audit Committee selects our independent auditor for the Board of Directors to recommend to the shareholders to appoint. PwC has served as our independent auditor since 2003. Our Audit Committee considers the experience of the PwC in auditing companies in the financial guaranty insurance industry and PwC’s institutional knowledge of our business and operations, accounting policies and financial systems, and the potential effect of changing independent auditors, when assessing whether to retain PwC as our independent auditor. Our Audit Committee believes there are significant benefits and operational efficiencies to retaining PwC as our independent auditor in 2024. Subject to our Company’s shareholders’ statutory right to set the terms of engagement for our independent auditor, including setting the remuneration of our independent auditor and authorizing our Board of Directors, through our Audit Committee, annually to set such terms of engagement, our 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 below under Independent Auditor Fee Information. 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. Our 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. Our Audit Committee’s pre-approval policies and procedures are discussed below under Independent Auditor Fee Information. Our Audit Committee annually conducts an evaluation of our independent auditor, currently PwC, to determine if they will recommend the retention of PwC as our independent auditor. Our Audit Committee is also involved in evaluating the qualifications and performance of the engagement team and lead partner. As part of the evaluation of the independent auditor, the engagement team and lead partner, our Audit Committee surveys select Company management and all members of our Audit Committee to evaluate the historical and recent performance of PwC and to determine if PwC is meeting our Company’s expectations. Among other things, our Audit Committee considers PwC’s independence, professional skepticism and objectivity, the quality and candor of PwC’s communications with our Audit Committee and management, the quality and efficiency of the services provided by PwC, and the depth of PwC’s understanding of our Company’s business, operations and systems, including the potential effect on the financial statements of major risk and exposures facing the Company. In addition, our Audit Committee obtains and reviews, at least annually, a report by PwC describing: •the firm’s internal quality-control procedures; •any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation of the firm by governmental or professional authorities, within the preceding five years, and any steps taken to deal with any such issues; and •an assessment of PwC’s independence and relationships between PwC and the Company. Based upon the foregoing, and in light of the quality of audit services and sufficiency of resources provided, our Audit Committee believes selecting PwC as our Company’s independent auditor for 2024 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 2024. INDEPENDENT AUDITOR FEE INFORMATION The following table presents fees for professional audit services rendered by PwC for the audit of our annual consolidated financial statements for 2023 and 2022 and fees for other services rendered by PwC in 2023 and 2022.
Authorized Securities under Equity Compensation Plans
| | 2023 | 2022 | | Audit fees(1) | $9,417,010 | $9,146,500 | | Audit-related fees(2) | $464,000 | $723,000 | | Tax fees(3) | $254,630 | $332,000 | | All other fees | $10,000 | $5,000 |
Authorized Securities under Equity Compensation Plans
(1) We paid audit fees, including costs, for the years ended December 31, 2023, and December 31, 2022, for professional services rendered in connection with: •the audits of our consolidated financial statements, of management’s assessment of internal controls over financial reporting and of the effectiveness of these controls •the statutory and U.S. GAAP audits of various subsidiaries •review of quarterly financial statements •SEC registration statements (2) Audit-related fees for the years ended December 31, 2023 and December 31, 2022 related to due diligence services for potential strategic transactions, audits of our employee benefit plans, audit procedures not required by statute or regulation, agreed upon procedures related to our proxy statement, and agreed upon procedures related to collateralized loan obligations. (3) Tax fees for the years ended December 31, 2023 and December 31, 2022 related to both tax compliance and tax consulting services. Compliance-related tax fees for 2023 and 2022 were primarily for professional services rendered in connection with the preparation of the 2022 federal tax returns. Compliance-related tax fees for 2023 also included a tax general & administrative expenses capitalization analysis. Tax consulting fees for 2023 and 2022 related to transfer pricing services and other professional services. PRE-APPROVAL POLICY OF AUDIT AND NON-AUDIT SERVICES The Audit Committee pre-approved all of the fees described above. The Audit Committee has adopted policies and procedures for the pre-approval of all audit and permissible non-audit services provided by our independent auditor, PwC. The Audit Committee provides a general pre-approval of certain audit and non-audit services on an annual basis. The types of services that may be covered by a general pre-approval include other audit services, audit-related services and permissible non-audit services. If a type of service is not covered by the Audit Committee’s general pre-approval, the Audit Committee must review the service on a specific case by case basis and pre-approve it if such service is to be provided by the independent auditor. Annual audit services engagement terms and fees require specific pre-approval of the Audit Committee and management and the auditor will report actual fees versus the budget periodically throughout the year by category of service. Any proposed services exceeding pre-approved costs also require specific pre-approval by the Audit Committee. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. Either the Audit Committee Chair or the entire Audit Committee must pre-approve the provision of any significant additional audit fees in excess of the budgeted amount and/or any excess related to non-audit fees over the budgeted amount. All fees related to internal control work are pre-approved by the Audit Committee before such services are rendered. The Audit Committee pre-approved all of the fees described above pursuant to its pre-approval policies and procedures. AUDIT COMMITTEE REPORT The Audit Committee consists of four members of the Board of Directors. The Board of Directors has determined that each Audit Committee member is: •independent, as that concept is defined in Section 10A of the Exchange Act, the SEC rules promulgated thereunder, and the NYSE listing standards, of our Company and our management; •financially literate, as contemplated by the NYSE listing standards; and •an audit committee financial expert, as that term is defined under Item 407(d) of Regulation S-K. 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 established by management; the system of internal control over accounting and financial reporting; the independent audit process and the independent auditor's qualifications; independence and performance; and the performance of our internal audit function. Our Company’s management prepares our consolidated financial statements in accordance with U.S. GAAP. Management is also responsible for establishing and maintaining the financial reporting process that generates the statements, including adequate internal controls over that process, and for assessing the effectiveness of the internal controls. 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. Management has 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, as part of its oversight of management's preparation of our Company’s Form 10-K, the Audit Committee: •reviewed and discussed the audited financial statements contained in the Form 10-K with management and PwC; •reviewed and discussed our quarterly earnings press releases and related materials; •reviewed the overall scope and plans for the internal and independent audits and the results of such audits; •reviewed critical accounting estimates and policies and the status of our loss reserves; •reviewed and discussed with management, including our Chief Financial Officer and Chief Accounting Officer, and with PwC, the effect on our financial statements of our Company's contribution to Sound Point Capital Management, LP, which we refer to as Sound Point, of most of our Company's asset management business and our Company's receipt of common interests representing an approximately 30% participation interest in Sound Point, subject to post-closing adjustments; •reviewed and discussed with management, including our Chief Financial Officer, Chief Accounting Officer, Senior Managing Director for Tax, and with PwC, the effect on our financial statements of the deferred tax asset established as a result of a new Bermuda tax law; •reviewed and discussed with management, including our General Counsel and Chief Compliance Officer, the effect on our financial statements of litigation and changes in regulation, and our compliance with our conflict of interest and global code of ethics policies; •reviewed and discussed our enterprise risk management and insurance underwriting with our Chief Risk Officer, coordinating the oversight of enterprise risk management and insurance underwriting with the Risk Oversight Committee and with the Board; •reviewed and discussed cybersecurity and business continuity risks, and risk management, related to financial systems and compliance with our Chief Technology Officer and Chief Information Security Officer, in coordination with the Risk Oversight Committee's supervision of the Company's information technology and cybersecurity risk management processes and controls, and with the Board's overall supervision of management's establishment and operation of a cybersecurity program; •reviewed and discussed SEC-proposed rules to enhance and standardize climate-related disclosures in our financial statements; •received periodic updates from management regarding Environmental, Social, and Governance (ESG) matters that may have a significant impact on the Company's financial statements;
Authorized Securities under Equity Compensation Plans
•reviewed our compliance with the requirements of Sarbanes Oxley Section 404 and our internal controls over financial reporting, including controls to prevent and detect fraud; •reviewed our whistleblower policy and its application; •discussed with PwC all the matters required to be discussed by U.S. GAAP, including the matters required to be discussed by the applicable requirements of the Public Accounting Oversight Board and the SEC, such as: –PwC’s judgments about the quality, not just the acceptability, of our Company’s accounting principles as applied in our financial reporting; –methods used to account for significant unusual transactions; –the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus and material alternative treatments; –the process used by management in formulating particularly sensitive accounting estimates and judgments, and the basis for PwC’s conclusions regarding the reasonableness of those estimates and judgments; –disagreements with management (of which there were none) over the application of accounting principles, the basis for management’s accounting estimates, and disclosures in the financial statements; and –any significant audit adjustments and any significant deficiencies in internal control; •reviewed and discussed with PwC the critical audit matters (CAMs) as disclosed in their audit report on our consolidated financial statements; •reviewed all other material written communications between PwC and management; and •discussed with PwC their independence from our Company and management, including a review of audit and non-audit fees, and reviewed in that context the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence. 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, 2023 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. Bonnie L. Howard, Chair G. Lawrence Buhl Thomas W. Jones Courtney C. Shea PROPOSAL NO. 5: PROPOSALS CONCERNING OUR SUBSIDIARY, ASSURED GUARANTY RE LTD. In accordance with AGL’s Bye-Laws, if AGL is required or entitled to vote at a general meeting of any direct non-United States subsidiary of AGL, AGL’s directors must refer the matter to the shareholders of AGL and seek authority from AGL’s shareholders for AGL’s representative or proxy to vote in favor of the resolution proposed by the subsidiary. AGL’s directors must cause AGL’s representative or proxy to vote AGL’s shares in the subsidiary pro rata to the votes received at the general meeting of AGL. In addition, AGL’s Board of Directors, in its discretion, may require that the organizational documents of each subsidiary of AGL organized under the laws of a jurisdiction outside the United States contain provisions substantially similar to these provisions. As a consequence, we are proposing that our shareholders authorize AGL to vote in favor of the following matters to be presented at the next annual general meeting of our subsidiary, Assured Guaranty Re Ltd., which we refer to as AG Re. PROPOSAL 5.1 — ELECTION OF AG RE DIRECTORS We propose that AGL be directed to elect the following ten directors of AG Re: Robert A. Bailenson, Gary Burnet, Ling Chow, Stephen Donnarumma, Dominic J. Frederico, Darrin Futter, Jorge A. Gana, Holly L. Horn, Benjamin Rosenblum and Walter A. Scott, with such persons constituting the entire board of directors of AG Re, to serve for one year terms commencing at the annual general meeting of AG Re. Other than Mr. Scott, each nominee is an officer of AGL or one of its subsidiaries and each has consented to serve as a director of AG Re without fee if elected. Mr. Scott received a director’s fee of $10,000 for his service during the 2023-2024 term. Mr. Scott has also been nominated to serve as an independent non-executive director of Assured Guaranty Re Overseas Ltd., which we refer to as AGRO, and which is a wholly owned reinsurance subsidiary of Assured Guaranty Ltd., for the 2024 - 2025 board term. If Mr. Scott’s nomination to serve on the AGRO board for the 2024-2025 board term is approved, he will be entitled to an additional director’s fee of $10,000 for his service on that Board. We do not expect that any of the nominees will become unavailable for election as a director of AG Re, but if any nominees should become unavailable prior to the meeting, proxy cards, whether submitted by telephone, via the Internet or by mail, authorizing the proxies to vote for the nominees will instead be voted for substitute nominees recommended by AG Re’s board of directors. Proposal 5.1 is Item 6 on the proxy card.
Authorized Securities under Equity Compensation Plans
| • | Our board of directors recommends that you direct AGL to vote “FOR” each of the nominees. |
Authorized Securities under Equity Compensation Plans
The biographies for these nominees are set forth below: Robert A. Bailenson, age 57, has been Chief Operating Officer of AGL since January 1, 2024. Mr. Bailenson has been with Assured Guaranty and its predecessor companies since 1990. Mr Bailenson was Chief Financial Officer of AGL from June 2011 through December 2023. Prior to that, Mr. Bailenson became Chief Accounting Officer of AGC in 2003, of AGL in May 2005, and of AGM in July 2009, and served in such capacities until 2019. He was Chief Financial Officer and Treasurer of AG Re from 1999 until 2003 and was previously the Assistant Controller of Capital Re Corp., the Company’s predecessor. Mr. Bailenson’s background as the Chief Operating Officer of AGL and former Chief Financial Officer and his experience as an accountant provides an important perspective to the Board of Directors of AG Re. Gary Burnet, age 53, has been President of AG Re since August 2012, and prior to that he served as the Managing Director — Chief Credit Officer of AG Re from 2006 until his appointment as President. Mr. Burnet also served as the Vice President — Risk Management and Operations of AG Re from 2002 to 2005. Prior to joining our Company, Mr. Burnet’s previous experience included two years at ACE Asset Management, where he was Investment Officer with responsibility for developing and modeling the ACE group’s consolidated investment and insurance credit risk. Prior to ACE Asset Management, he was an Assistant Vice President — Investments at ACE Bermuda. Mr. Burnet trained as a Chartered Accountant with Geoghegan & Co. CA from 1993 to 1996 in Edinburgh Scotland and also worked as an audit senior for Coopers & Lybrand from 1996 to 1998 in Bermuda. As the President of AG Re, Mr. Burnet has the most comprehensive knowledge of its operations, including the key areas of underwriting credit risk, accounting and risk management. Ling Chow, age 53, has been General Counsel and Secretary of AGL since January 1, 2018. She is responsible for legal affairs and corporate governance at the Company, including its litigation and other legal strategies relating to distressed credits, and its corporate, compliance, regulatory and disclosure efforts. She is also responsible for the Company’s human capital management function. Ms. Chow began her tenure at the Company in 2002 as a transactional attorney, working on the insurance of structured finance and derivative transactions. She previously served as Deputy General Counsel and Assistant Secretary of AGL from May 2015 and as Assured Guaranty’s U.S. General Counsel from June 2016. Prior to that, Ms. Chow served as Deputy General Counsel of Assured Guaranty’s U.S. subsidiaries in several capacities from 2004. Before joining Assured Guaranty, Ms. Chow was an associate at law firms in New York City, where she was responsible for transactional work associated with public and private mergers and acquisitions, venture capital investments and private and public securities offerings. Ms. Chow’s experience as an attorney and her position as the General Counsel of AGL enable her to make valuable contributions as a member of the Board of Directors of AG Re. Stephen Donnarumma, age 61, has been the Chief Credit Officer of AGC since 2007, and of AGM since its 2009 acquisition. Mr. Donnarumma joined Assured Guaranty in 1993 and has held a number of positions over the years, including Deputy Chief Credit Officer of AGL, Chief Operating Officer and Chief Underwriting Officer of AG Re, Chief Risk Officer of AGC, and Senior Managing Director, Head of Mortgage and Asset-backed Securities of AGC. Prior to joining Assured Guaranty, Mr. Donnarumma was with Financial Guaranty Insurance Company from 1989 until 1993, where his responsibilities included underwriting domestic and international financial guaranty transactions. Prior to that, he served as a Director of Credit Risk Analysis at Fannie Mae from 1987 until 1989. Mr. Donnarumma was also an analyst with Moody’s Investors Services from 1985 until 1987. Mr. Donnarumma’s experience with credit analysis and risk management, and his position as the Chief Credit Officer of AGM and AGC, provides an important perspective to the Board of Directors of AG Re. Dominic J. Frederico — See Mr. Frederico’s biography in “Election of Directors — Nominees for Director.” The benefits of his experience described therein with respect to the Board of Directors of AGL also make him valuable as a director of AG Re. Darrin Futter, age 49, was elected Financial Controller of AG Re and AGRO in 2007, prior to which he worked for Deloitte Ltd. in the Bermuda office and worked as a consultant to AG Re. Mr. Futter has worked in various senior audit roles with Ernst and Young LLP in the U.S. and KPMG in Zimbabwe, where he completed his Articles of Clerkship in 2000. He holds a Bachelor of Accounting Science (Hon.) degree from the University of South Africa and is also a Chartered Accountant and a member of the Institute of Chartered Accountants of Zimbabwe. Mr. Futter’s extensive audit experience provides an important perspective to the Board of Directors of AG Re. Jorge A. Gana, age 53, has been Chief Risk Officer of AGL and Chair of the U.S. Risk Management and Portfolio Risk Management Committees since January 1, 2023. Mr. Gana also maintains primary responsibility for the environmental aspect of Assured Guaranty’s ESG efforts. Prior to that, Mr. Gana served as Deputy Chief Risk Officer of AGM and AGC. Mr. Gana joined Assured Guaranty in 2005 as a Director in Structured Finance. Over the years, Mr. Gana has held a number of positions at Assured Guaranty, including Managing Director, Structured Finance at AGC, Senior Managing Director of Workouts and Government & Corporate Affairs at AGM and AGC, and chair of AGM's and AGC's Workout Committees. Mr. Gana continues to serve as a voting member of AGM's and AGC's Credit and Workout Committees. Prior to joining Assured Guaranty, Mr. Gana served as a Director of Global Commercial Asset Securitization for XLCA (now Syncora). Prior to XLCA, Mr. Gana worked at Natexis Banques Populaires (now Natixis) and at Banco Santander in global capacities dealing with credit and risk, managing investment portfolios, originating complex transactions, and issuing repackaged debt. Mr. Gana also worked for the Chile Economic Development Agency, New York Office, and as Editor of the Chile Economic Report until 1996. Mr. Gana’s experience in risk management, credit analysis and workouts and his position as Chief Risk Officer of AGL provides an important perspective to the Board of Directors of AG Re. Holly L. Horn, age 62, has been Chief Surveillance Officer of of AGL, AGM and AGC since January 1, 2022. Prior to that, Ms. Horn served as Chief Surveillance Officer, Public Finance of AGM and AGC, where she was responsible for ongoing surveillance, monitoring and loss mitigation of municipal risks insured by Assured Guaranty across all sectors of the municipal market. She joined AGM in 2003 as a director in the healthcare underwriting group, where she was responsible for analyzing and recommending the insurability of health care credits. She also served as a director in AGM's healthcare surveillance group. Ms. Horn began her public finance career at Inova Health System, a nationally ranked integrated health care delivery system and subsequently served as a senior manager for the national healthcare strategy practice at Ernst & Young. Ms. Horn’s surveillance expertise and her position as the Chief Surveillance Officer of AGL, AGM and AGC enhance the deliberations of the Board of Directors of AG Re.
Authorized Securities under Equity Compensation Plans
Benjamin Rosenblum, age 50, has been Chief Financial Officer of AGL since January 1, 2024. Prior to that, Mr. Rosenblum was Chief Actuary of AGL from 2021 through December 2023, and also Chief Actuary of AGM and AGC since 2010. He joined Assured Guaranty in 2004, responsible for the loss reserve function at Assured Guaranty Re Ltd. and Assured Guaranty Re Overseas Ltd., later assuming the same responsibilities at Assured Guaranty UK Limited and at Assured Guaranty (Europe) SA. He became a Senior Managing Director in 2015, and has been in charge of accounting and financial reporting since 2019. Mr. Rosenblum's actuarial and accounting expertise and his position as the Chief Financial Officer of AGL provides an important perspective to the Board of Directors of AG Re. Walter A. Scott, age 86, was the Chair of the AGL Board of Directors from May 2005 until his retirement in May 2013, and a director of AGL from 2004 through 2013. Mr. Scott was Chair, President and Chief Executive Officer of ACE from 1991 until his retirement in 1994, and President and Chief Executive Officer of ACE from 1989 to 1991. Subsequent to his retirement he served as a consultant to ACE until 1996. Mr. Scott was a director of ACE from 1989 through May 2005. Prior to joining ACE, Mr. Scott was President and Chief Executive Officer of Primerica’s financial services operations. Mr. Scott currently serves as the Chair of the Board of Wachusett Brewing Company, Inc. and was also the Chair of Vermont Hard Cider Company, LLC from 2003 until 2012, when that company was sold. Mr. Scott is an Emeritus Trustee of Lafayette College and a founding trustee of the Bermuda Foundation for Insurance Studies. Mr. Scott’s tenure on the AGL Board of Directors and lengthy experience at senior levels in the financial services industry allow him to provide valuable perspective to the Board of Directors of AG Re. PROPOSAL 5.2 — APPOINTMENT OF AG RE AUDITOR We propose that AGL be directed to appoint PwC as the independent auditor of AG Re for the fiscal year ending December 31, 2024, subject to PwC being appointed as our Company’s independent auditor. We expect representatives of PwC to be present at AGL’s Annual General Meeting with an opportunity to make a statement if they wish and to be available to respond to appropriate questions. Proposal 5.2 is Item 5B on the proxy card. The following table presents fees for professional audit services rendered by PwC for the audit of AG Re’s financial statements for 2023 and 2022.
Authorized Securities under Equity Compensation Plans
| | 2023 | 2022 | | Audit fees | $95,400 | $90,000 | | Audit — related fees | — | — | | Tax fees | — | — | | All other fees | — | — |
Authorized Securities under Equity Compensation Plans
The above audit fees are also included in the audit fees shown in “Proposal No. 4: Appointment of Independent Auditor.” Other Matters. The Board of Directors of AGL does not know of any matter to be brought before the annual general meeting of AG Re that we have not described in this proxy statement. If any other matter properly comes before the annual general meeting of AG Re, AGL’s representative or proxy will vote in accordance with their judgment on such matter.
Authorized Securities under Equity Compensation Plans
| • | The board of directors recommends that you direct AGL to vote “FOR” each of the proposals concerning AGL’s subsidiary, AG Re. |