Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — FY2015 Earnings Presentation
53 slides from Assured Guaranty's earnings presentation, Dec 31, 2015
Slide 1: Equity Investor Presentation December 31, 2015
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation December 31, 2015
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 • 2015 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 assets – Invest
Slide 5: 2015 Accomplishments
2015 Accomplishments • Earned a record $699 million of operating income1, or $4.69 per share – constitutes respective increases of 42% and 66% year-over-year • Increased operating shareholders’ equity1 per share and adjusted book value1 per share to record levels of $43.11 and $61.18, respectively •
Slide 6: Assured Guaranty Overview
Assured Guaranty Overview
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty franchise, with over three decades of ($ in billions) December 31, 2015 January 1, 2008 experience in the municipal and (pro forma)1 structured finance markets Net par outstanding $358.6 $626.6 • In the U.S., we
Slide 8: Operating income growth since 2004
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual operating income1 from $141 million in 2004 to $699 million in 2015, a 16% compounded annual growth rate (CAGR) • Operating income1 has grown through acquisitions, new business production and other strate
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 December 31, 20
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 Structure Shareholders Assured Guaranty Ltd. • Total investment portfolio and cash is $10 million2 (Head Office – Bermuda; Tax Residence – U.K.) 2015 expenses of $30 million; • 2015 dividend distribution was $72 million Assured Guaranty Re Ltd. (Bermuda
Slide 12: Underlying Value
Underlying Value
Slide 13: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Investments Available for Sale and Cash by Rating1,2 As of December 31, 2015 • Highly rated, with 71% of fixed maturity and Nearly 100% for loss A BBB mitigation or other short-term investments rated AA or higher, 1% 17% risk management and cash str
Slide 14: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 60:1 as of 4Q-15 – Deleveraging should continue in the near term as new business is not expected to replace the amortization
Slide 15: Investment Income Generates Capital
Underlying Value Investment Income Generates Capital • Investment income1 is higher than Investment Income1 ($ in millions) the combination of operating and Net investment interest expenses, a spread that income $448 fosters capital growth $390 $392 $396 $393 Other operating $361 expenses • Investme
Slide 16: Historical Growth
Underlying Value Historical Growth Adjusted Book Value1 per Share Adjusted Book Value1 ($ in millions) $61.18 $9,151 $8,887 $8,989 $8,987 $9,033 $53.66 $8,495 $8,439 $17.23 $48.92 $49.32 $49.58 $48.26 $47.17 $3,101 $2,723 $3,484 $2,453 $2,377 $15.49 $3,8730 $41.97 $4,291 $41.90 $0.84 $14.95 $146 $19
Slide 17: Creating Value
Creating Value
Slide 18: New Business Production: U.S. Public Finance Penetration
Creating Value New Business Production Penetration in the U.S. Public Finance Market • We are focused on building demand for our New Issue U.S. Public Finance guaranties, both in the primary and the Insured Par Sold and Transaction Penetration1 secondary markets for U.S. public finance ($ in million
Slide 19: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • New structured finance business production tends to fluctuate, as large, U.S. Structured PVP1 complex transactions require a long ($ in millions) time frame to close $18 $16 • We expect that structured finance opportu
Slide 20: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 1Q-15, we insured a reinsurance Non-U.S. PVP1 by Quarter transaction and increased non-U.S. PVP1 ($ in millions) by $5 million due to a previously insured transaction $28 • During 4Q-15, non-U.S. PVP increased due to European
Slide 21: Underwriting Discipline
Creating Value New Business Production Underwriting Discipline • Continued focus on underwriting discipline • New business written reflects rising demand for municipal bond insurance, despite a low interest rate environment – 2015 insured par volume outpaced the increase in overall market volume – B
Slide 22: Commutations & Reinsurance Platform
Creating Value Commutations & Reinsurance Platform • Reassumption of previously ceded business has increased the unearned Ceded Par Outstanding by Reinsurer2 premium reserve and adjusted book value1 As of December 31, 2015 Reassumed Reassumed Commutation Net Par Par UPR Gain / (Loss) ($ in millions)
Slide 23: R&W Activity
Creating Value R&W Activity • We have recovered approximately $4.2 billion1 through December 31, 2015 from our combined R&W efforts including settlements and commitments, R&W receipts and loss reductions from terminated insurance protection • Our largest agreement was with Bank of America / Countryw
Slide 24: Loss Mitigation Bond Purchases
Creating Value Loss Mitigation Bond Purchases • Since 2008, for loss mitigation purposes, we have strategically purchased bonds we had previously insured. Besides reducing our losses, these purchases can potentially relieve rating agency capital charges, increase future investment income and increas
Slide 25: Agreements to Terminate Guaranties
Creating Value Agreements to Terminate Guaranties • Actively pursue termination of contracts – At beneficiary’s request: may keep all economics, possibly more – At our request: share economics with beneficiary – To eliminate high capital charges: share or possibly give up some economics • Since Janu
Slide 26: Financial Results
Financial Results December 31, 2015
Slide 27: Fourth Quarter and Full Year 2015 Operating Results
Fourth Quarter and Full Year 2015 Operating Results (Excluding Consolidation of VIEs) ($ in millions, except per share data) Quarter Ended % Change Year Ended % Change December 31, vs. 4Q-14 December 31, vs. 2014 2015 2014 2015 2014 Financial guaranty insurance premiums and credit derivative revenue
Slide 28: 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 – Loss expense included in operating income is calculated on a transaction by transaction basis. Losses are reported i
Slide 29: Portfolio Overview
Portfolio Overview December 31, 2015
Slide 30: Capital Base
Capital Base Claims-Paying Resources (as of December 31, 2015) ($ in millions) AGUS Consolidated AG Re1 AGL Consolidated Policyholders' surplus $3,561 $989 $4,550 Contingency reserve 2,263 - 2,263 Qualified statutory capital 5,824 989 6,813 Unearned premium reserve 2,251 794 3,045 2 Loss and loss ad
Slide 31: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Claims-Paying Resources and Statutory-Basis Exposures As of December 31, 2015 ($ in millions) AGM AGC MAC AG Re10 Eliminations4 Consolidated Claims-paying resources Policyholders' surplus $ 2,441 $ 1,395 $ 730 $ 989 $ (975) $
Slide 32: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s portfolio is largely Consolidated Net Par Outstanding1 concentrated in U.S. public finance1 As of December 31, 2015 ($ in billions) – 81% U.S. public finance Non-U.S. Structured Finance – 9% U.S. structured finance AA- Average Rating $5.4 Non-U.S. P
Slide 33: Net Par Outstanding Amortization
Net Par Outstanding Amortization Consolidated Net Par Outstanding Amortization1 • Amortization of the existing portfolio reduces rating As of December 31, 2015 ($ in billions) agency capital charges, but also embedded future Public Finance earned premiums $640 Structured Finance $617 • New direct or
Slide 34: U.S. Public Finance
U.S. Public Finance Net Par Outstanding U.S. Public Finance • U.S. public finance net par outstanding is As of December 31, 2015 ($ in billions) $291.9 billion and makes up 81% of our total insured portfolio as of December 31, 2015 Higher Other Public Education $11.9 Finance • U.S. public finance po
Slide 35: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies2 As of December 31, 2015 Net Par Gross Par ($ in millions) Outstanding3 Outstanding Internal Rating Puerto Rico Highways and Transportation Authority $909 $936 CCC- Previously (Transportation Revenue Bonds)4 Subjec
Slide 36: Puerto Rico Exposure: Net Par by Radian Impact
Public Finance Puerto Rico Exposure Net Par Exposure to the Commonwealth and its Agencies As of December 31, 2015 Excluding Impact of Radian ($ in millions) Impact of Radian Total1 Acquisition Acquisition Puerto Rico Highways and Transportation Authority Previously Subject to the Voided Recovery Act
Slide 37: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies1,2 As of December 31, 2015 2026- 2031- 2036- 2041- 2046- ($ in millions) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2035 2040 2045 2047 Total Highways and Transportation Au
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 Agencies1,2 As of December 31, 2015 2026- 2031- 2036- 2041- 2046- ($ in millions) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2035 2040 2045 2047 Total Previously Subject to
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, 2015 ($ in billions) • 85% of non-U.S. exposure is public finance Other – Direct sovereign debt is limited to Poland ($203 $8.3 million outstanding) Canada $3.1 24% 9% • 15% of non-U.S. exposur
Slide 40: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of December 31, 2015 ($ in billions) • We expect Assured Guaranty’s global U.S. and structured finance insured portfolio ($37.1 Non-U.S. Other Pooled billion as of December 31, 2015) to amortize Structured 53% Corporate rapidly ─ 19% expect
Slide 41: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $7.1 billion U.S. RMBS portfolio is amortizing both on a dollar basis and as a U.S. RMBS by Exposure Type percentage of the portfolio As of December 31, 2015 ($ in billions) – Total U.S. RMBS has declined from $29.2 billion at Subprime December 31, 2009 to $7.1 billion a
Slide 42: U.S. CMBS & Direct Pooled Corporate Obligations Exposures
U.S. CMBS & Direct Pooled Corporate Obligations Exposures Direct Pooled Corporate Obligations • Within direct pooled corporate exposures, our $4.4 By Asset Class billion of Trust Preferred Securities (TruPS) CDO As of December 31, 2015 exposure is diversified by region and collateral $1.1 type $7.1
Slide 43: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories • As of December 31, 2015, ($ in millions) December 31, 2015 December 31, 2014 Category 1 approximately $8.0 billion (53%) of U.S. public finance $4,766 $
Slide 44: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $13.0 billion1 • The largest components of our BIG exposure are Puerto Rico at 33% and U.S. RMBS at 26% • Of the approximately $3 billion in net par BIG exposure added from the Radian acquisition in 2Q- 15, $1.9 billion rema
Slide 45: BIG Exposures > $250 Million
BIG Exposures > $250 Million ($ in millions) BIG Exposures Greater Than $250 Million as of December 31, 2015 Net Par Internal Type1 Name or Description Outstanding Rating PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $ 1,821 CCC PF Puerto Rico Highways and Tran
Slide 46: Appendix
ASSURED GUARANTY F | Appendix
Slide 47: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures Endnotes related to non-GAAP financial measures discussed in the presentation: To reflect the key financial measures management analyzes in evaluating the Company’s operations and progress towards long-term goals, the Company discusses both measure
Slide 48: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Adjusted Book Value and Operating Shareholders’ Equity: Management also uses adjusted book value to measure the intrinsic value of the Company, excluding franchise value. Growth in adjusted book value per share is one of the key financial
Slide 49: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Operating Return on Equity (‘‘Operating ROE’’): Operating ROE represents operating income for a specified period divided by the average of operating shareholders’ equity at the beginning and the end of that period. Management believes that
Slide 50: Reconciliation of PVP to Gross Written Premiums
Appendix Reconciliation of PVP1 to Gross Written Premiums (GWP) Consolidated New Business Production Analysis Three Months Ended % Change Year Ended % Change December 31 versus December 31 versus 2015 2014 4Q-14 2015 2014 2014 Present value of new business production (PVP): Public finance - U.S.: $4
Slide 51: Reconciliation of Operating Income to Net Income
Appendix Reconciliation of Operating Income1 to Net Income (Loss) ($ in millions, except per share data) Three Months Ended Year Ended December 31, December 31, 2015 2014 2015 2014 Operating income $117 $81 $699 $491 Plus after-tax adjustments: Realized gains (losses) on investments (4) (21) (25) (3
Slide 52: Reconciliation of GAAP Book Value to Adjusted Book Value
Appendix Reconciliation of GAAP Book Value to Adjusted Book Value1 Reconciliation of Shareholders' Equity (GAAP Book Value) to Adjusted Book Value1 ($ in millions, except per share amounts) As of : December 31, 2015 December 31, 2014 Total Per share Total Per share Shareholders' equity $ 6,063 $ 43.
Slide 53: Assured Guaranty Contacts
Assured Guaranty Contacts: Robert Tucker 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] Katie-May Gordon Associate, Investor