Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q1 2018 Earnings Presentation
57 slides from Assured Guaranty's earnings presentation, May 2018
Slide 1: Equity Investor Presentation March 31, 2018
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation March 31, 2018
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 2018 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 2018 Accomplishments
First Quarter 2018 Accomplishments • Earned $155 million of non-GAAP operating income1, or $1.33 per share, which includes $5 million, or $0.04 per share, related to the effect of consolidating financial guaranty variable interest entities (FG VIEs) – First quarter 2017 included significant gains fr
Slide 6: Assured Guaranty Overview
Assured Guaranty Overview
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty franchise, with over three decades of ($ in billions) March 31, 2018 September 30, 2009 experience in the municipal and structured finance markets Net par outstanding $257.1 $646.6 U.S. public finance $201.3 $424
Slide 8: Assured Guaranty Overview: Non-GAAP Operating Income by Year
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual non-GAAP operating income1 from $141 million in 2004 to $661 million in 2017, a 13% compounded annual growth rate (CAGR). • Non-GAAP operating income1 has grown through acquisitions, new business producti
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 3, 2018, 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 of $35 million2 (Head Office – Bermuda; Tax Residence – U.K.) • Q1 2018 annualized expenses of $40 million • Q1 2018 annualized dividend distribution of $72 Assured Guar
Slide 12: Underlying Value
Underlying Value
Slide 13: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of March 31, 2018 Nearly 100% of BIG is held for loss A mitigation or other • Highly rated fixed maturity and short- 17% BBB 3% risk management term investments, 69% rated AA or strategies higher, and cash 4 BIG
Slide 14: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 39:1 as of 1Q-18 – Deleveraging is expected to continue in the near term as new business is not expected to fully re
Slide 15: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher Net Investment Income ($ in millions) than the combination of operating and interest expenses, a spread Estimated net that fosters capital growth investment income $423 $418 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 $77.74 $79.45 $66.46 $20.50 $20.53 $60.87 $15.85 $0.98 $53.27 $1.01 $48.26 $46.54 $48.22 $17.07 $46.22 $44.84 $0.72 $41.90 $41.97 $15.34 $0.84 $14.63 $35.66 $7.38 $9.05 $23.30 $20.72 $18.46 $15.62 $0.69 $29.54 $5.31 $0.80 $56
Slide 17: Creating Value
Creating Value
Slide 18: New Business Production: Penetration in U.S. Public Finance Market
Creating Value New Business Production (Par Insured) Penetration in the U.S. Public Finance Market • We are focused on building demand for our guaranties, both in the primary and the New Issue U.S. Public Finance secondary markets for U.S. public finance Insured Par Sold and Transaction Penetration1
Slide 19: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • Focus has been on bilateral transactions to improve policy beneficiaries’ capital management efficiency U.S. Structured PVP1 ($ in millions) • New structured finance business production $23 tends to fluctuate, as larg
Slide 20: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 1Q-18, we closed United Kingdom public- private-partnership and utility transactions in both the primary and secondary market Non-U.S. PVP1 by Quarter ($ in millions) • We are optimistic about the pipeline of infrastructure t
Slide 21: Underwriting Principles and Pricing Discipline
Creating Value New Business Production Underwriting Principles and Pricing Discipline • Continued focus on underwriting and pricing discipline – Consistent with our pricing discipline, PVP to gross par written in the first quarter 2018 increased to 277 bps compared to 211 bps in the first quarter 20
Slide 22: Alternative Strategies: Acquisitions
Creating Value Alternative Strategies Acquisitions • Radian Asset Assurance acquisition closed on April 1, 2015 - Resulted in an increase of $654 million to claims-paying resources, an increase of $193 million to non-GAAP operating shareholder’s equity and $570 million to non-GAAP adjusted book valu
Slide 23: Alternative Strategies: Alternative Investments
Creating Value Alternative Strategies Alternative Investments • In July 2016, the Company announced the formation of an Alternative Investments group - The Alternative Investments group focuses on deploying a portion of Assured Guaranty’s excess capital to pursue acquisitions and develop new busines
Slide 24: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and non-GAAP adjusted book value1 Commutations Since 2009 Ceded Par Outstanding by Reinsurer As of March 31, 2018 As of March 31, 2018 Commutation Reassumed Par Reassumed UPR Gain / (Lo
Slide 25: Loss Mitigation Bond Purchases
Creating Value Loss Mitigation Bond Purchases • Since 2008, for loss mitigation purposes, we have strategically purchased bonds we had previously insured. Besides reducing our losses, these purchases can potentially relieve rating agency capital charges, increase future investment income and increas
Slide 26: Agreements to Terminate Contracts
Creating Value Loss Mitigation Agreements to Terminate Contracts • Actively pursue termination of insurance contracts – At beneficiary’s request: may keep all economics, possibly more – At our request: share economics with beneficiary – To eliminate high capital charges: share or possibly give up so
Slide 27: Financial Results
Financial Results March 31, 2018
Slide 28: First Quarter 2018 Results: Select Financial Items
First Quarter 2018 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended March 31, 1Q-17 2018 2017 Net income (loss) $197 $317 (38)% Net income (loss) per diluted share $1.68 $2.49 (33)% Net earned premiums $145 $164 (12)
Slide 29: 1st Quarter Loss Measures
1st Quarter Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors that affect the ultimate loss experience. Economic loss development excludes the effe
Slide 30: Portfolio Overview
Portfolio Overview March 31, 2018
Slide 31: Capital Base: Claims-Paying Resources
Capital Base (U.S. Statutory Basis) Claims-Paying Resources1 As of March 31, 2018 AGUS ($ in millions) Consolidated AG Re2 AGL Consolidated Claims-paying resources Policyholders' surplus $3,944 $1,017 $4,961 Contingency reserve 1,777 - 1,777 Qualified statutory capital 5,721 1,017 6,738 Unearned pre
Slide 32: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of March 31, 2018 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,247 $1,847 $277 $1,017 ($427) $4,961 C
Slide 33: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of March 31, 2018 ($ in billions) Non-U.S. Structured – 78% U.S. public finance Finance A Average Rating – 17% Non-U.S. public finance $1.3 Non-U.S.
Slide 34: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing portfolio reduces rating Consolidated Net Par Outstanding Amortization1 agency capital charges, but also embedded future As of March 31, 2018 ($ in billions) earned premiums $640 Public Finance – Currently, the portfolio consists of $24
Slide 35: 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 $201.3 billion and makes up 78% of our total As of March 31, 2018 insured portfolio as of March 31, 2018 ($ in billions) • U.S. public finance portfolio generally Higher Other Public performed we
Slide 36: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1 As of March 31, 2018 Net Par Gross Par ($ in millions) Outstanding 2 Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3 $1,419 $1,469 Constitutionally Puerto Rico Public Buildings Au
Slide 37: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies1 As of March 31, 2018 2Q 3Q 4Q 2028- 2033- 2038- 2043- ($ in millions) 2018 2018 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2032 2037 2042 2047 Total Commonwealth – GO $0 $78 $0
Slide 38: Puerto Rico Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies1 As of March 31, 2018 2Q 3Q 4Q 2028- 2033- 2038- 2043- ($ in millions) 2018 2018 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2032 2037 2042 2047 Total Commonwealth – GO
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 March 31, 2018 ($ in billions) • 97% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($291 $2.6 Other France million outstanding) $5.9 $3.2 Australia $2.3 6% 13% 7
Slide 40: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of March 31, 2018 U.S. and Non-U.S. ($ in billions) U.S. • Assured Guaranty’s total structured finance RMBS Pooled $4.7 exposure of $240.9 billion at December 31, Corporate $1.3 11% 2007 has declined by $228.9 billion to $12.0 39% billion t
Slide 41: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $4.7 billion U.S. RMBS portfolio is amortizing both on a dollar basis and as a U.S. RMBS by Exposure Type percentage of the portfolio As of March 31, 2018 ($ in billions) – Total U.S. RMBS has declined from $29.2 billion at December Subprime 31, 2009 to $4.7 billion at M
Slide 42: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) March 31, 2018 December 31, 2017 • As of March 31, 2018, approximately Category 1 $4.0 billion (34%) of the aggregate U.S. public finance $1,
Slide 43: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $15.2 billion. • The reassumption of American Overseas increased BIG net par outstanding by approximately $32 million in 2018. • The largest components of our BIG exposure are Puerto Rico at 43% and U.S. RMBS at 23%. BIG Net
Slide 44: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of March 31, 2018 Net Par Internal Type1 Name or Description Outstanding Rating PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $1,578 CCC- PF Puerto Rico Highways and T
Slide 45: Appendix
ASSURED GUARANTY F | Appendix 5S.
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 Non-GAAP Operating Income: Management believes that non-GAAP operating income 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 of th
Slide 48: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) 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, adjusted for FG VIE consolidation
Slide 49: Reconciliation of Gross Written Premiums (GWP) to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP Reconciliation of GWP to PVP Three Months Ended Year Ended December 31, (dollars in millions) Mar 31, 2018 Mar 31, 2017 2017 2016 2015 2014 2013 Total GWP $73 $111 $307 $154 $181 $104 $123 Less: Installment GWP and other GAAP adjustments
Slide 50: Reconciliation of Net Income to Non-GAAP Operating Income
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 Three Months Ended Non-GAAP Operating Income Reconciliation March 31, (dollars in millions, except per share amounts) 2018 2017 Per Diluted Per Diluted Total Share Total Share Net income (loss) $197 $1.68 $317 $2.49 Less pre-
Slide 51: Reconciliation of Net Income to Non-GAAP Operating Income (2004-2017)
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 (2004-2017) Non-GAAP Operating income reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2017 2016 2015 2014 2013 2012 2011 Total Per Share Total Per Share Total Per Share Total Per Share T
Slide 52: Reconciliation of Shareholders' Equity to Non-GAAP Adjusted Book Value (2004-2010)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2004-2010) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2Q 2004 2004 2005 2006 2007 2008 2009 2010 Per Per Per Per Per Per Per Per Total Share Total Share Total Share Tota
Slide 53: Reconciliation of Shareholders' Equity to Non-GAAP Adjusted Book Value (2011-2017)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2011-2017) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2011 2012 2013 2014 2015 2016 2017 Per Per Per Per Per Per Per Total Share Total Share Total Share Total Share Tota
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, 2018 December 31, 2017 March 31, 2017 December 31, 2016 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 2017 1Q 2018 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, 2018 2017 Net income (loss) $197 $317 Non-GAAP Operating income 155 273 Gain (loss) related to FG VIE consolidation included in non-GAAP operating income 5 5 Average sh
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, 2018 56