Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q4 2014 Earnings Presentation
57 slides from Assured Guaranty's earnings presentation, February 2015
Slide 1: Equity Investor Presentation December 31, 2014
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation December 31, 2014
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 • 2014 accomplishments • Assured Guaranty overview – Track record of creating shareholder value – Dividend limitation calculations – Simplified corporate structure • Underlying value – Selected company assets and liabilities – High-quality investment portfolio – Deleveraging while
Slide 5: 2014 Accomplishments
2014 Accomplishments • Financial strength ratings for Assured Guaranty Municipal Corp. (AGM), Assured Guaranty Corp. (AGC) and Municipal Assurance Corp. (MAC) upgraded by S&P from ‘AA-’ (stable) to ‘AA’ (stable). Kroll (“KBRA”) initiated its coverage of AGM with a rating of ‘AA+’ (stable) and affirm
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 three decades of ($ in billions) December 31, 2014 January 1, 2008 experience in the municipal and (pro-forma)1 structured finance markets Net par outstanding $403.7 $626.6 • In the U.S., we serve
Slide 8: Assured Guaranty Overview: Operating Income by Year
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our operating income1 from $141 million in 2004 to $491 million in 2014, a 13% compounded annual growth rate (CAGR) • Operating income1 has grown through acquisitions, new business production and other strategic act
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 – In 2014, we repurchased a total of 24.4 million common shares for approximately $590 million at an average price of $2
Slide 10: Dividend Limitation Calculations
Dividend Limitation Calculations Assured Guaranty Municipal Corp. Assured Guaranty Corp. Assured Guaranty Re Ltd. (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 statement • Cann
Slide 11: Simplified Corporate Structure
Assured Guaranty Overview Simplified Corporate Structure1 Current Corporate Structure Shareholders Assured Guaranty Ltd. Total investment portfolio and cash is $126 million2 (Head Office – Bermuda; Tax Residence – U.K.)1 2014 expenses of $31 million; 2014 full-year dividend distribution was $76 mill
Slide 12: Underlying Value
Underlying Value
Slide 13: Selected Company Assets and Liabilities
Underlying Value Selected Company Assets and Liabilities • Our investment portfolio is 92% Selected Company Assets and Liabilities invested in fixed income securities As of December 31, 2014 ($ in millions, except per share) • Gross premiums receivable of $729 Total investment portfolio $11,384 mill
Slide 14: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Investments and Cash Available for Sale by Rating1,2 • Highly rated, with 74% of fixed maturity and Approximately short-term investments rated AA or higher A 100% for loss • Very liquid, with approximately $1 billion 17% mitigation or BBB other risk
Slide 15: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our net par outstanding to total invested assets and cash net of losses expected to be paid has declined from 68:1 in 4Q-09 to 39:1 as of 4Q-14, putting us in a stronger capital position – Deleveraging should continue in the nea
Slide 16: Investment Income Generates Capital
Underlying Value Investment Income Generates Capital • Investment income1 is higher than Investment Income1 ($ in millions) the combination of operating and Net investment interest expenses, a spread that income $396 $393 $390 $392 fosters capital growth $361 $338 Other operating expenses $311 $312
Slide 17: Historical Growth
Underlying Value Historical Growth Adjusted Book Value1 per Share Adjusted Book Value1 ($ in millions) $53.66 $9,151 $8,887 $8,989 $8,987 $9,033 $49.58 $8,495 $48.92 $49.32 $48.26 $47.17 $15.49 $3,101 $2,723 $41.90 $41.97 $3,484 $2,453 $3,8730 $14.95 $4,291 $19.12 $15.98 $21.08 $146 $35.66 $7.38 $9.
Slide 18: Creating Value
Creating Value
Slide 19: New Business Production: U.S. Public Finance Penetration
Creating Value New Business Production Penetration in the U.S. Public Finance Market • We are focused on building demand for our guaranties, both in the primary and the Assured Guaranty secondary markets New Issue U.S. Public Finance Insured Par Sold and Transaction Penetration1 – Secondary market p
Slide 20: New Business Production: U.S. Structured Finance Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • In 4Q-14, we closed two new market tax credit transactions and a reserve U.S. Structured PVP1 financing transaction, generating $16 ($ in millions) million of PVP1 $32 • 2014 U.S. structured finance PVP1 was $24 milli
Slide 21: New Business Production: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 3Q-14, we insured a non-U.S. diversified payment rights transaction • During 2Q-14, we closed a non-U.S. Non-U.S. Finance PVP1 by Quarter diversified payment rights structured ($ in millions) finance transaction $13 – $200 mi
Slide 22: Underwriting Discipline
Creating Value New Business Production Underwriting Discipline • Continued focus on underwriting discipline • New business written reflects the current economic environment – Tighter credit spreads in the bond market – Declining interest rates in 2014; municipal bond yields at near record lows in th
Slide 23: Reinsurance Platform
Creating Value Reinsurance Platform • Reassumption of previously ceded business has increased the unearned Ceded Par Outstanding by Reinsurer2 premium reserve and adjusted book value1 As of December 31, 2014 Reassumed Reassumed Commutation Net Par Par UPR Gain / (Loss) ($ in millions) Year ($ in bil
Slide 24: R&W Activity
Creating Value R&W Activity • The cumulative total (gross of reinsurance) of settlement receipts and commitments and R&W putback receipts was approximately $4.2 billion. 1,2 • Favorable 2013 ruling in Flagstar trial was a positive development for ongoing and future R&W litigation • Our largest agree
Slide 25: Loss Mitigation Bond Purchases
Creating Value Loss Mitigation Bond Purchases • We have a program to purchase securities we have insured in order to reduce our losses and potentially relieve rating agency capital charges, increase future investment income and increase adjusted book value1 – The amount of reserves released and the
Slide 26: Agreements to Terminate Guaranties
Creating Value Agreements to Terminate Guaranties • Actively pursue termination of contracts – At beneficiary’s request: may keep all economics, possibly more – At our request: share economics with beneficiary – To eliminate high capital charges: share or possibly give up some economics • Since Janu
Slide 27: Financial Results
Financial Results December 31, 2014
Slide 28: Fourth Quarter 2014 Operating Results
Fourth Quarter 2014 Operating Results (Excluding Consolidation of VIEs) ($ in millions, except per share data) Quarter Ended % Change Year Ended % Change December 31, vs. 4Q-13 December 31, vs. 2013 2014 2013 2014 2013 Net earned premiums and credit derivative revenues1 $178 $222 (20)% $675 $932 (28
Slide 29: Loss Expense Accounting and Economic Loss Development
Loss Expense Accounting and Economic Loss Development • Loss expense included in operating income1 does not necessarily represent the Company’s economic loss development in a period – All losses must be calculated on a transaction by transaction basis, and each transaction's expected loss estimate p
Slide 30: Portfolio Overview
Portfolio Overview December 31, 2014
Slide 31: Capital Base
Capital Base Claims-Paying Resources (as of December 31, 2014) ($ in millions) AGUS Consolidated AG Re1 AGL Consolidated Policyholders' surplus $3,088 $1,054 $4,142 Contingency reserve2 2,330 - 2,330 Qualified statutory capital 5,418 1,054 6,472 Unearned premium reserve2 2,419 880 3,299 2,3 Loss and
Slide 32: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Claims-Paying Resources and Statutory-Basis Exposures As of December 31, 2014 ($ in millions) AGM AGC MAC AG Re10 Eliminations4 Consolidated Claims-paying resources Policyholders' surplus $ 2,267 $ 1,086 $ 612 $ 1,054 $ (877)
Slide 33: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s portfolio is largely Consolidated Net Par Outstanding concentrated in U.S. public finance As of December 31, 2014 ($ in billions) – 80% U.S. public finance Non-U.S. Structured – 10% U.S. structured finance Finance AA Average Rating – 10% Non-U.S. pu
Slide 34: Net Par Outstanding Amortization
Net Par Outstanding Amortization Consolidated Net Par Outstanding Amortization1 • Amortization of the portfolio reduces rating agency As of December 31, 2014 ($ in billions) capital charges, but also embedded future earned Public Finance premiums $640 Structured Finance $617 • Public finance exposur
Slide 35: U.S. Public Finance
U.S. Public Finance Net Par Outstanding U.S. Public Finance • U.S. public finance net par outstanding is As of December 31, 2014 ($ in billions) $322.1 billion, which is 80% of our total as of December 31, 2014 Higher Other Public Education $13.1 Finance • Our U.S. public finance portfolio has $11.5
Slide 36: Public Finance: Puerto Rico Exposure
Public Finance Puerto Rico Exposure • In June 2014, the Puerto Rico legislature passed the Recovery Act in order to provide a legislative framework for certain public corporations experiencing severe financial stress to restructure their debt, including PRHTA and PREPA. On February 6, 2015, the U.S.
Slide 37: Puerto Rico Exposure: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of December 31, 2014 2025- 2030- 2035- 2040- 2045- ($ in millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2034 2039 2044 2047 Total Highways and Subject to the Now V
Slide 38: Puerto Rico Exposure: Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of December 31, 2014 2025- 2030- 2035- 2040- 2045- ($ in millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2034 2039 2044 2047 Total Highways and Transportat
Slide 39: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of December 31, 2014 ($ in billions) • Non-U.S. exposure is 78% public finance and Other 22% structured finance $10.1 Canada $3.5 • Approximately 73% of non-U.S. structured 25% exposure is to pooled corporates
Slide 40: Insured Obligations Within Troubled Eurozone Countries
Insured Obligations Within Troubled Eurozone Countries1 • Approximately 31%, or $0.9 billion, of net par outstanding of exposure to troubled Eurozone countries is to structured finance transactions Insured Obligations Within • M6 Toll Road is a 58km dual carriage motorway from Budapest south towards
Slide 41: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of December 31, 2014 ($ in billions) • We expect Assured Guaranty’s global U.S. and structured finance insured portfolio ($50.2 Non-U.S. Other Pooled billion as of December 31, 2014) to amortize Structured 54% Corporate rapidly ─ 25% by yea
Slide 42: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $9.4 billion U.S. RMBS portfolio is U.S. RMBS by Exposure Type amortizing on a dollar basis and as a As of December 31, 2014 percentage of the portfolio ($ in billions) Subprime – Total U.S. RMBS has declined from $29.2 Alt-A First Lien 1 billion at December 31, 2009 to
Slide 43: U.S. RMBS Exposure
U.S. RMBS Exposure Loss-Sharing Arrangements Net Par Outstanding by Quarter • 54% of total U.S. RMBS is included in R&W ($ in billions) agreements $22.5 – 72% of our exposure to troubled U.S. RMBS $21.6 transactions (below investment grade plus $20.9 $19.9 reclassified par due to loss-sharing arrang
Slide 44: U.S. CMBS & Direct Pooled Corporate Obligations Exposures
U.S. CMBS & Direct Pooled Corporate Obligations Exposures • We have maintained a conservative underwriting U.S. CMBS by Exposure Type stance on CMBS As of December 31, 2014 – Focus on senior exposures and whole loans Reinsurance <$0.1 • Our CMBS portfolio was largely triple-A at 1% Traditional under
Slide 45: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit • The majority of our BIG exposures in Derivatives Surveillance Categories categories 2 and 3 are in structured ($ in millions) December 31, 2014 December 31, 2013 finance – specifically RMB
Slide 46: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $10.0 billion1,2 • U.S. RMBS remains the largest component of our BIG exposure at 31%; Puerto Rico is 26% • In 2014, our activity (primarily terminations and bond purchases) reduced our below investment grade exposure by ove
Slide 47: BIG Exposures > $250 Million
BIG Exposures > $250 Million ($ in millions) BIG Exposures Greater Than $250 Million as of December 31, 2014 Net Par Internal Current Credit 60+ Day Type1 Name or Description Outstanding Rating Enhancement3 Delinquencies2 PF Puerto Rico General Obligation, Appropriations and Guarantees of the Common
Slide 48: Appendix
ASSURED GUARANTY F | Appendix
Slide 49: Dividend Limitations
Assured Guaranty Overview Dividend Limitations1 Assured Guaranty Re Ltd. Assured Guaranty Corp. (Bermuda) (U.S.) Dividend Limitations1 Dividend Limitations1 Any distribution (including repurchase of shares) of any share capital, contributed Under Maryland insurance law, AGC may, with prior notice to
Slide 50: HELOC and Option-ARM Delinquencies
HELOC and Option-ARM Delinquencies For Financial Guaranty Direct Transactions1,2 HELOCs 30-59 Days Originated 2004-2007 3.5% 3.0% 2.9%3.0%3.2% 3.7% 2.9% 3.1% 2.8%2.7%2.6% 2.4% 2.4% 2.3% 2.3% 2.4% 2.4% 2.1% 2.2% 2.3% 1.9% 1.8% 2.0%2.0% 1.9% 1.8% 1.8% 2.1% 2.1% 2.0% 1.6% 2.1% 2.1% 1.8%1.8% 1.8% 1.9% 1
Slide 51: Alt-A and Subprime 30-59 Day Delinquencies
Alt-A and Subprime 30-59 Day Delinquencies For Financial Guaranty Direct Transactions1 Alt-A 30-59 Days Originated 2004-2007 3.8% 3.3% 3.4%3.5% 3.3% 3.0%3.0% 2.8% 2.9% 2.8% 2.9% 2.8% 2.7% 2.7% 2.7% 2.8% 2.7% 2.5% 2.7% 2.5% 2.7% 2.5% 2.6% 2.6% 2.7% 2.7% 2.6% 2.8% 2.6% 2.5% 2.4% 2.4% 2.6% 2.5% 2.5% 2.
Slide 52: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures Endnotes related to non-GAAP financial measures discussed in the presentation: The Company references financial measures that are not in accordance with GAAP. Assured Guaranty’s management and the board of directors utilize non-GAAP financial measu
Slide 53: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Operating Shareholders’ Equity: Management believes that operating shareholders’ equity is a useful measure because it presents the equity of Assured Guaranty Ltd. with all financial guaranty contracts accounted for on a more consistent ba
Slide 54: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Adjusted Book Value: Management believes that adjusted book value is a useful measure because it enables an evaluation of the net present value of the Company’s in-force premiums and revenues in addition to operating shareholders’ equity.
Slide 55: Reconciliation of PVP to GWP & Operating Income to Net Income
Appendix Reconciliation of PVP1 to Gross Written Premiums (GWP) & Operating Income1 to Net Income (Loss) ($ in millions, except per share data) Consolidated New Business Production Analysis: Reconciliation of Consolidated Operating Income to Net Income (Loss) 4Q-14 4Q-13 4Q-14 4Q-13 Δ% Operating inc
Slide 56: Reconciliation of GAAP Book Value to Adjusted Book Value
Appendix Reconciliation of GAAP Book Value to Adjusted Book Value1 Reconciliation of Shareholders' Equity (GAAP Book Value) to Adjusted Book Value1 ($ in millions, except per share amounts) As of : December 31, 2014 December 31, 2013 Total Per share Total Per share Shareholders' equity $ 5,758 $ 36.
Slide 57: Assured Guaranty Contacts
Assured Guaranty Contacts: Robert Tucker Managing Director, Investor Relations and Corporate Communications Direct: 212.339.0861 [email protected] Ross Aron Vice President, Equity Investor Relations Direct: 212.261.5509 [email protected] Equity Presentation December 31, 2014 56