Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q1 2017 Earnings Presentation
57 slides from Assured Guaranty's earnings presentation, May 2017
Slide 1: Equity Investor Presentation March 31, 2017
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation March 31, 2017
Slide 2: Forward-Looking Statements and Safe Harbor Disclosure
Forward-Looking Statements and Safe Harbor Disclosure • This presentation contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future
Slide 3: Conventions and Non-GAAP Financial Measures
Conventions and Non-GAAP Financial Measures • Unless otherwise noted, the following conventions are used in this presentation: – Ratings on Assured Guaranty’s insured portfolio and on bonds purchased pursuant to our loss mitigation or risk management strategies are our internal credit ratings. Inter
Slide 4: Table of Contents
Table of Contents • First quarter 2017 accomplishments • Assured Guaranty overview – Track record of creating shareholder value – Dividend limitation calculations – Simplified corporate structure • Underlying value – High-quality investment portfolio – Deleveraging while maintaining total invested a
Slide 5: First Quarter 2017 Accomplishments
First Quarter 2017 Accomplishments • Earned $273 million of operating income1(non-GAAP), or $2.14 per share, which includes $5 million, or $0.03 per share, attributable to the effect of consolidating financial guaranty variable interest entities (FG VIEs) • Increased shareholders' equity per share,
Slide 6: Assured Guaranty Overview
Assured Guaranty Overview
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty franchise, with over three decades of ($ in billions) March 31, 2017 September 30, 2009 experience in the municipal and structured finance markets Net par outstanding $298.2 $646.6 U.S. public finance $238.1 $424
Slide 8: Assured Guaranty Overview: Operating Income Growth
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual operating income1 from $141 million in 2004 to $895 million in 2016, a 17% compounded annual growth rate (CAGR). • Operating income (non-GAAP)1 has grown through acquisitions, new business production and
Slide 9: Track Record of Creating Shareholder Value
Assured Guaranty Overview Track Record of Creating Shareholder Value • We have returned excess capital to shareholders by distributing dividends and repurchasing our common shares – Since 2013, when we started our capital management strategy of repurchasing our common shares, through May 4, 2017, we
Slide 10: Dividend Limitation Calculations
Dividend Limitation Calculations Assured Guaranty Municipal Corp. Assured Guaranty Corp. Assured Guaranty Re Ltd. (AG Re) (Domiciled in New York) (Domiciled in Maryland) (Domiciled in Bermuda) • Based on most recently filed quarterly or annual statement • Based on most recently filed annual statemen
Slide 11: Simplified Corporate Structure
Assured Guaranty Overview Simplified Corporate Structure1 Shareholders Assured Guaranty Ltd. • Total investment portfolio and cash is $12 million2 (Head Office – Bermuda; Tax Residence – U.K.) • 1Q 2017 annualized expenses of $40 million • 1Q 2017 annualized dividend distribution of $76 Assured Guar
Slide 12: Underlying Value
Underlying Value
Slide 13: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of March 31, 2017 Nearly 100% of BIG is held for loss A BBB mitigation or other • Highly rated fixed maturity and short- 17% 2% risk management term investments, 69% rated AA or 4 strategies higher, and cash BIG
Slide 14: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 46:1 as of 1Q-17 – Deleveraging should continue in the near term as new business is not expected to fully replace th
Slide 15: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher Net Investment Income ($ in millions) than the combination of operating and interest expenses, a spread Estimated net that fosters capital growth investment income $423 $410 Net investment income $404 $393 $40
Slide 16: Historical Growth: Non-GAAP Adjusted Book Value per Share
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $71.51 $66.46 $60.87 $18.17 $15.85 $53.27 $48.26 $48.22 $17.07 $0.83 $46.54 $46.22 $0.72 $44.84 $41.90 $41.97 $15.34 $0.84 $14.63 $35.66 $7.38 $9.05 $0.69 $23.30 $20.72 $18.46 $15.62 $29.54 $5.31 $0.80 $9.15 $49.89 $52.51 $24
Slide 17: Creating Value
Creating Value
Slide 18: New Business Production: Penetration in U.S. Public Finance Market
Creating Value New Business Production (Par Insured) Penetration in the U.S. Public Finance Market • We are focused on building demand for our New Issue U.S. Public Finance guaranties, both in the primary and the Insured Par Sold and Transaction Penetration1 secondary markets for U.S. public finance
Slide 19: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • Focus has been on bilateral transactions to improve policy beneficiaries’ capital management efficiency U.S. Structured PVP1 • During 1Q 2017, we increased our ($ in millions) reinsurance exposure on an existing capit
Slide 20: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 1Q-17, we guaranteed two U.K. university housing transactions, one U.K. hospital transaction, and a transaction in the aviation Non-U.S. PVP1 by Quarter finance sector, as well as several U.K. secondary ($ in millions) market
Slide 21: Underwriting and Pricing Discipline
Creating Value New Business Production Underwriting and Pricing Discipline • Continued focus on underwriting and pricing principals • Gross par of new business written increased for the 1st quarter year-over-year. PVP increased from $38 million in the 1st quarter 2016 to $99 million in the 1st quart
Slide 22: Alternative Strategies: MBIA UK Acquisition
Creating Value Alternative Strategies MBIA UK Acquisition • On January 10, 2017, AGC completed its acquisition of MBIA UK Insurance Limited (“MBIA UK”). AGC exchanged all its holdings of the Zohar II 2005-1 notes (which had an outstanding par of $347 million and fair value of $334 million as of the
Slide 23: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and Ceded Par Outstanding by Reinsurer non-GAAP adjusted book value1 As of March 31, 2017 Commutation Reassumed Par Reassumed UPR Gain / (Loss) Net Par ($ in millions) Year ($ in billio
Slide 24: Loss Mitigation Bond Purchases
Creating Value Loss Mitigation Bond Purchases • Since 2008, for loss mitigation purposes, we have strategically purchased bonds we had previously insured. Besides reducing our losses, these purchases can potentially relieve rating agency capital charges, increase future investment income and increas
Slide 25: Agreements to Terminate Contracts
Creating Value Loss Mitigation Agreements to Terminate Contracts • Actively pursue termination of insurance contracts – At beneficiary’s request: may keep all economics, possibly more – At our request: share economics with beneficiary – To eliminate high capital charges: share or possibly give up so
Slide 26: Financial Results
Financial Results March 31, 2017
Slide 27: First Quarter 2017 Results: Select Financial Items
First Quarter 2017 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended March 31, 1Q-16 2017 2016 Net income (loss) $317 $59 437% Net income (loss) per diluted share $2.49 $0.43 479% Net earned premiums $164 $183 (10)% N
Slide 28: First Quarter Loss Measures
First Quarter Loss Measures Economic loss development (all contracts): • Represents the expected change in future losses due to changes in transaction performance, discount rates, loss mitigation and other factors that affect the ultimate loss experience. Economic loss development excludes the effec
Slide 29: Portfolio Overview
Portfolio Overview March 31, 2017
Slide 30: Capital Base: Claims-Paying Resources
Capital Base (U.S. Statutory Basis) Claims-Paying Resources As of March 31, 2017 AGUS ($ in millions) Consolidated AG Re1 AGL Consolidated Claims-paying resources Policyholders' surplus $3,852 $1,147 $4,999 Contingency reserve 2,039 - 2,039 Qualified statutory capital 5,891 1,147 7,038 Unearned prem
Slide 31: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of March 31, 2017 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,221 $1,875 $486 $1,147 ($730) $4,999 C
Slide 32: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of March 31, 2017 ($ in billions) Non-U.S. Structured – 80% U.S. public finance Finance A+ Average Rating – 13% Non-U.S. public finance $2.4 Non-U.S
Slide 33: Net Par Outstanding Amortization
Net Par Outstanding Amortization Consolidated Net Par Outstanding Amortization1 • Amortization of the existing portfolio reduces rating As of March 31, 2017 ($ in billions) agency capital charges, but also embedded future earned premiums $640 Public Finance $617 Structured Finance • New direct or as
Slide 34: U.S. Public Finance Net Par Outstanding
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is U.S. Public Finance $238.1 billion and makes up 80% of our total As of March 31, 2017 insured portfolio as of March 31, 2017 ($ in billions) • U.S. public finance portfolio generally Higher Other Public performed we
Slide 35: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies As of March 31, 2017 Net Par Gross Par ($ in millions) Outstanding2,4 Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds3 $1,495 $1,577 Constitutionally Puerto Rico Public Buildings Aut
Slide 36: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies1 As of March 31, 2017 2Q 3Q 4Q 2027- 2032- 2037- 2042- ($ in millions) 2017 2017 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2031 2036 2041 2047 Total Commonwealth – GO $0 $93 $0
Slide 37: Puerto Rico Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies1 As of March 31, 2017 2Q 3Q 4Q 2027- 2032- 2037- 2042- ($ in millions) 2017 2017 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2031 2036 2041 2047 Total Commonwealth – GO
Slide 38: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of March 31, 2017 ($ in billions) • 94% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($219 Other $2.8 million outstanding) $6.2 France $2.8 7% Australia 15% 7% $3.
Slide 39: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of March 31, 2017 ($ in billions) U.S. and • We expect Assured Guaranty’s current global Non-U.S. structured finance insured portfolio ($20.9 Pooled 37% Corporate billion as of March 31, 2017) to amortize Other $7.8 rapidly ─ 30% expected t
Slide 40: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $5.4 billion U.S. RMBS portfolio is amortizing both on a dollar basis and as a U.S. RMBS by Exposure Type percentage of the portfolio As of March 31, 2017 ($ in billions) – Total U.S. RMBS has declined from $29.2 billion at Subprime December 31, 2009 to $5.4 billion at M
Slide 41: Direct Pooled Corporate Obligations Exposures
Direct Pooled Corporate Obligations Exposures • Most of our direct pooled corporate exposure is Direct Pooled Corporate Obligations highly rated and well protected By Asset Class1 As of March 31, 2017 – 72% rated AAA – Average credit enhancement of 30% $4.4 58% • Within direct pooled corporate expos
Slide 42: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) March 31, 2017 December 31, 2016 • As of March 31, 2017, approximately Category 1 $4.9 billion (37%) of the aggregate U.S. public finance $2,
Slide 43: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $15.0 billion1 ‒ The increase in BIG net par outstanding in Q1 2017 was due primarily to the purchase of MBIA UK • The largest components of our BIG exposure are Puerto Rico at 37% and U.S. RMBS at 23% BIG Net Par Outstandin
Slide 44: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of March 31, 2017 Net Par Internal Type1 Name or Description Outstanding Rating PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $ 1,682 CCC- PF Puerto Rico Highways and
Slide 45: Appendix
ASSURED GUARANTY F | Appendix
Slide 46: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures To reflect the key financial measures that management analyzes in evaluating the Company’s operations and progress towards long-term goals, the Company discloses both financial measures determined in accordance with GAAP and financial measures not
Slide 47: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures Operating Income (non-GAAP): Management believes that operating income (non-GAAP) is a useful measure because it clarifies the understanding of the underwriting results and financial condition of the Company and presents the results of operations o
Slide 48: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Non-GAAP Adjusted Book Value: Management uses non-GAAP adjusted book value, adjusted for FG VIE consolidation, to measure the intrinsic value of the Company, excluding franchise value. Growth in non-GAAP adjusted book value per share adjus
Slide 49: Reconciliation of Gross Written Premiums to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP1 Three Months Reconciliation of GWP to PVP Ended Year Ended December 31, (dollars in millions) March 31, 2017 2016 2015 2014 2013 2012 Total GWP $111 $154 $181 $104 $123 $253 Less: Installment GWP and other GAAP adjustments 1 57 (10) 55
Slide 50: Reconciliation of Net Income to Operating Income (non-GAAP)
Appendix Reconciliation of Net Income (Loss) to Operating Income (non-GAAP)1 Three Months Ended Operating Income Reconciliation March 31, (dollars in millions, except per share amounts) 2017 2016 Per Diluted Per Diluted Total Share Total Share Net income (loss) $317 $2.49 $59 $0.43 Less pre-tax adju
Slide 51: Reconciliation of Net Income to Operating Income (2004-2016)
Appendix Reconciliation of Net Income (Loss) to Operating Income (non-GAAP)1 (2004-2016) Non-GAAP Operating income reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2016 2015 2014 2013 2012 2011 2010 Total Per Share Total Per Share Total Per Share Total Per Share
Slide 52: Reconciliation of Shareholders' Equity to Adjusted Book Value (2004-2009)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2004-2009) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2Q 2004 2004 2005 2006 2007 2008 2009 Total Per Share Total Per Share Total Per Share Total Per Share Total Per Sha
Slide 53: Reconciliation of Shareholders' Equity to Adjusted Book Value (2010-2016)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2010-2016) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2010 2011 2012 2013 2014 2015 2016 Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share
Slide 54: Reconciliation of Shareholders' Equity to Non-GAAP Adjusted Book Value
Appendix Reconciliation of Shareholders’ Equity to non-GAAP Adjusted Book Value1 Non-GAAP Adjusted book value reconciliation As of (dollars in millions, except per share amounts) March 31, 2017 December 31, 2016 March 31, 2016 December 31, 2015 Total Per Share Total Per Share Total Per Share Total P
Slide 55: Calculation of Non-GAAP Operating Portfolio Leverage
Appendix Calculation of Non-GAAP Operating Portfolio Leverage Non-GAAP Operating Leverage (dollars in millions, except leverage) 2009 2010 2011 2012 2013 2014 2015 2016 1Q-2017 2017 2018 2019 2020 2021 Insured Net Par Outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $296,31
Slide 56: Reconciliation of GAAP ROE to Non-GAAP Operating ROE
Appendix Reconciliation of GAAP ROE to Non-GAAP Operating ROE ROE Reconciliation (dollars in millions) Three Months Ended March 31, 2017 2016 Net income (loss) $317 $59 Operating income (non-GAAP) 273 123 Gain (loss) related to FG VIE consolidation included in operating income (non-GAAP) 5 10 Averag
Slide 57: Assured Guaranty Contacts
Assured Guaranty Contacts: Robert Tucker Senior Managing Director, Investor Relations and Corporate Communications Direct: 212.339.0861 [email protected] Andre Thomas Managing Director, Equity Investor Relations Direct: 212.339.3551 [email protected] Equity Investor Presentation March 31, 2017 56