Segment Information

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Information

Segment Information

     The Company reports its results of operations consistent with the manner in which the Company's chief operating decision maker (CODM) reviews the business to assess performance and allocate resources. Prior to the acquisition of BlueMountain on October 1, 2019, the Company's operating subsidiaries were all insurance companies, and results of operations were viewed by the CODM as one segment. Beginning in the fourth quarter of 2019, with the acquisition of BlueMountain and expansion into the asset management business, the Company now operates in two distinct segments, Insurance and Asset Management. The following describes the components of each segment, along with the Corporate division and Other categories. The Insurance and Asset Management segments are presented without giving effect to the consolidation of the financial guaranty (FG) VIEs and investment vehicles. See Note 11, Variable Interest Entities.

    The Insurance segment primarily consists of the Company's insurance subsidiaries that provide credit protection products to the U.S. and international public finance (including infrastructure) and structured finance markets. The Insurance segment also includes the income (loss) from its proportionate equity investments in funds managed by AssuredIM (AssuredIM funds).

    The Asset Management segment consists of the Company's asset management subsidiaries and their associated entities, which provide asset management services to outside investors as well as to the Company's Insurance segment. The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross, as components of asset management fees and other operating expenses.

    The Corporate division consists primarily of interest expense on the debt of AGUS and AGMH, as well as other operating expenses attributed to holding company activities, including administrative services performed by operating subsidiaries for the holding companies.

    Other items consist of intersegment eliminations, reclassification of asset management reimbursable expenses, and consolidation adjustments, including the effect of consolidating FG VIEs and certain AssuredIM investment vehicles in which the Insurance segment invests. See Note 11, Variable Interest Entities.

    The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources and only reviews assets at a consolidated level.

    Total adjusted operating income includes the effect of consolidating both FG VIEs and investment vehicles; however, the effect of consolidating such entities, including the related eliminations, is included in the "other" column in the tables below, which represents the CODM's view, consistent with the management approach guidance for presentation of segment metrics.

    The Company analyzes the operating performance of each segment using "adjusted operating income." Results for each segment include specifically identifiable expenses as well as allocations of expenses between legal entities based on time studies and other cost allocation methodologies based on headcount or other metrics. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

1)    Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.

2)    Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments.

3)    Elimination of fair value gains (losses) on the Company’s committed capital securities (CCS) that are recognized in net income.

4)    Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjustment expense (LAE) reserves that are recognized in net income.

5)    Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The following tables present the Company's operations by operating segment. The information for the prior year has been conformed to the new segment presentation.

Segment Information

	Third Quarter 2020
	Insurance		Asset Management		Corporate		Other		Total
	(in millions)
Third-party revenues	$	186	$	13	$	12	$	21	$	232
Intersegment revenues	3		1		—		(4)		—
Total revenues	189		14		12		17		232
Total expenses	134		29		32		5		200
Income (loss) before income taxes and equity in net earnings of investees	55		(15)		(20)		12		32
Equity in net earnings of investees	20		—		—		(13)		7
Adjusted operating income (loss) before income taxes	75		(15)		(20)		(1)		39
Provision (benefit) for income taxes	(6)		(3)		(2)		(1)		(12)
Noncontrolling interests	—		—		—		3		3
Adjusted operating income (loss)	$	81	$	(12)	$	(18)	$	(3)	$	48
Supplemental income statement information
Net investment income	$	75	$	—	$	—	$	(4)	$	71
Interest expense	—		—		24		(3)		21
Non-cash compensation and operating expenses (1)	9		4		1		—		14

	Third Quarter 2019
	Insurance		Asset Management		Corporate		Other		Total
	(in millions)
Third-party revenues	$	221	$	—	$	1	$	1	$	223
Intersegment revenues	1		—		—		(1)		—
Total revenues	222		—		1		—		223
Total expenses	97		—		31		2		130
Income (loss) before income taxes and equity in net earnings of investees	125		—		(30)		(2)		93
Equity in net earnings of investees	1		—		(1)		—		—
Adjusted operating income (loss) before income taxes	126		—		(31)		(2)		93
Provision (benefit) for income taxes	19		—		(3)		—		16
Noncontrolling interests	—		—		—		—		—
Adjusted operating income (loss)	$	107	$	—	$	(28)	$	(2)	$	77
Supplemental income statement information
Net investment income	$	89	$	—	$	1	$	(2)	$	88
Interest expense	—		—		23		(1)		22
Non-cash compensation and operating expenses (1)	9		—		1		—		10

	Nine Months Ended September 30, 2020
	Insurance		Asset Management		Corporate		Other		Total
	(in millions)
Third-party revenues	$	623	$	41	$	8	$	44	$	716
Intersegment revenues	8		3		—		(11)		—
Total revenues	631		44		8		33		716
Total expenses	308		81		99		8		496
Income (loss) before income taxes and equity in net earnings of investees	323		(37)		(91)		25		220
Equity in net earnings of investees	37		—		(5)		(29)		3
Adjusted operating income (loss) before income taxes	360		(37)		(96)		(4)		223
Provision (benefit) for income taxes	40		(7)		(13)		(2)		18
Noncontrolling interests	—		—		—		5		5
Adjusted operating income (loss)	$	320	$	(30)	$	(83)	$	(7)	$	200
Supplemental income statement information
Net investment income	$	240	$	—	$	1	$	(12)	$	229
Interest expense	—		—		72		(8)		64
Non-cash compensation and operating expenses (1)	27		13		4		—		44

	Nine Months Ended September 30, 2019
	Insurance		Asset Management		Corporate		Other		Total
	(in millions)
Third-party revenues	$	695	$	—	$	2	$	23	$	720
Intersegment revenues	2		—		—		(2)		—
Total revenues	697		—		2		21		720
Total expenses	244		—		93		16		353
Income (loss) before income taxes and equity in net earnings of investees	453		—		(91)		5		367
Equity in net earnings of investees	3		—		—		—		3
Adjusted operating income (loss) before income taxes	456		—		(91)		5		370
Provision (benefit) for income taxes	77		—		(12)		1		66
Noncontrolling interests	—		—		—		—		—
Adjusted operating income (loss)	$	379	$	—	$	(79)	$	4	$	304
Supplemental income statement information
Net investment income	$	298	$	—	$	3	$	(5)	$	296
Interest expense	—		—		69		(2)		67
Non-cash compensation and operating expenses (1)	29		—		4		—		33

_____________________

(1)    Consists of amortization of deferred acquisition costs and intangible assets, depreciation and share-based compensation.

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Net income (loss) attributable to AGL	$	86	$	69	$	214	$	265
Less pre-tax adjustments:
Realized gains (losses) on investments	13		16		12		12
Non-credit impairment unrealized fair value gains (losses) on credit derivatives	(3)		11		6		(29)
Fair value gains (losses) on CCS (1)	(10)		(14)		13		(4)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	40		(20)		(15)		(23)
Total pre-tax adjustments	40		(7)		16		(44)
Less tax effect on pre-tax adjustments	(2)		(1)		(2)		5
Adjusted operating income (loss)	$	48	$	77	$	200	$	304

_____________________

(1)    Presented in Other income (loss) on the condensed consolidated statements of operations.

Revenue by Country of Domicile

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
U.S.	$	186	$	172	$	579	$	560
Bermuda	33		43		105		128
U.K. and other	13		8		32		32
Total	$	232	$	223	$	716	$	720

    The following table reconciles the Company's total consolidated revenues and expenses to segment revenues and expenses:

Reconciliation of Segment Revenues and Expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Revenues
Total consolidated revenues	$	268	$	206	$	736	$	667
Less: Realized gains (losses) on investments	13		16		12		12
Less: Non-credit impairment unrealized fair value gains (losses) on credit derivatives	(3)		11		6		(29)
Less: Fair value gains (losses) on CCS	(10)		(14)		13		(4)
Less: Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	40		(20)		(15)		(23)
Plus: Credit derivative impairment (recoveries) (1)	4		10		(4)		9
Total segment revenues	$	232	$	223	$	716	$	720
Expenses
Total consolidated expenses	$	196	$	120	$	500	$	344
Plus: Credit derivative impairment (recoveries) (1)	4		10		(4)		9
Total segment expenses	$	200	$	130	$	496	$	353

_____________________

(1)    Credit derivative impairment (recoveries) are included in "Net change in fair value of credit derivatives" in the Company's condensed consolidated statements of operations.