Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q4 2018 Earnings Presentation
56 slides from Assured Guaranty's earnings presentation, March 2019
Slide 1: Equity Investor Presentation December 31, 2018
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation December 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 • Fourth Quarter 2018 and Year-End 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 maintaini
Slide 5: Fourth Quarter 2018 Accomplishments
Fourth Quarter 2018 Accomplishments • Earned $92 million of non-GAAP operating income1, or $0.87 per share • Increased shareholders' equity per share, non-GAAP operating shareholders' equity1 per share and non-GAAP adjusted book value1 per share, reaching new records of $63.23, $61.17 and $86.06, re
Slide 6: Year-End 2018 Accomplishments
Year-End 2018 Accomplishments • Earned $482 million of non-GAAP operating income1, or $4.34 per share • Generated $663 million of new business production1, with contributions from all three major sectors • Repurchased an additional 13.2 million common shares ($500 million) at an average price of $37
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview
Slide 8: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. ($ in billions) December 31, 2018 September 30, 2009 • We are the leading financial guaranty franchise, with over three decades of Net par outstanding $241.8 $646.6 experience in the municipal and U.S. public finance $186.6 $424.9 structured finance ma
Slide 9: Non-GAAP Operating Income Growth Since 2004
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 $482 million in 2018, a 9% compounded annual growth rate (CAGR). • Non-GAAP operating income1 has grown through acquisitions, new business productio
Slide 10: 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 February 28, 20
Slide 11: 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 12: Simplified Corporate Structure
Assured Guaranty Overview Simplified Corporate Structure1 Shareholders Assured Guaranty Ltd. • Total investment portfolio and cash of $45 million2 (Head Office – Bermuda; Tax Residence – U.K.) • Annual expenses of $29 million • Annual dividend distribution of $71 million Assured Guaranty Re Ltd. (Be
Slide 13: Underlying Value
Underlying Value
Slide 14: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of December 31, 2018 Nearly 100% of BIG is held for loss A mitigation or other • Highly rated fixed maturity and short- BBB 18% 5% risk management term investments, 66% rated AA or strategies higher, and cash 4 B
Slide 15: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 38:1 as of 4Q-18 – Deleveraging is expected to continue in the near term as new business is not expected to fully re
Slide 16: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher than the combination of operating and interest expenses, a spread that fosters capital growth Net Investment Income ($ in millions) Net investment income $423 $418 $404 $393 $403 $408 $398 $396 $361 Other oper
Slide 17: Historical Growth
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $86.06 $77.74 $23.32 $66.46 $20.53 $60.87 $1.57 $53.27 $15.85 $1.01 $48.26 $46.54 $46.22 $48.22 $17.07 $0.72 $44.84 $41.90 $41.97 $15.34 $0.84 $35.66 $14.63 $7.38 $9.05 $23.30 $18.46 $15.62 $0.69 $20.72 $61.17 $29.54 $5.31 $0
Slide 18: Creating Value
Creating Value
Slide 19: New Business Production: Penetration in U.S. Public Finance Market
Creating Value New Business Production (Par Insured) Penetration in the U.S. Public Finance Market (excluding SGI portfolio) • We are focused on building demand for our New Issue U.S. Public Finance guarantees, both in the primary and the Insured Par Sold and Transaction Penetration1 secondary marke
Slide 20: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • During 2018, we continued to execute U.S. Structured PVP1 transactions in aviation and commercial real (excluding SGI reinsurance portfolio)2 estate markets, and guaranteed a ($ in millions) collateralized loan obliga
Slide 21: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 4Q-18 we closed non-U.S. transactions in both public finance and structured finance, Non-U.S. PVP1 including a United Kingdom social housing (excluding SGI reinsurance portfolio)2 ($ in millions) $42 financing • During 3Q-18
Slide 22: Underwriting Principles and Pricing Discipline
Creating Value New Business Production Underwriting Principles and Pricing Discipline • Gross par written and PVP increased in the 4th quarter of 2018 compared with the 4th quarter of 2017 - Gross par written increased from $4.8 billion in the 4th quarter 2017 to $4.9 billion in the 4th quarter 2018
Slide 23: Alternative Strategies: Acquisitions and Reinsurance
Creating Value Alternative Strategies Acquisitions and Reinsurance • SGI reinsurance transaction closed on June 1, 2018 - Resulted in $11.3 billion of gross written par and $391 million of PVP, which helped lead the Company to a 10-year record high for PVP - Increased non-GAAP adjusted book value by
Slide 24: Alternative Strategies: Alternative Investments
Creating Value Alternative Strategies Alternative Investments • In February 2018, the Company acquired a minority interest in Rubicon Infrastructure Advisors - Rubicon is a full-service investment banking firm active in the global infrastructure sector, that has advised on over 70 merger and acquisi
Slide 25: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and non-GAAP adjusted book value1 Commutations Since 2009 Ceded Par Outstanding by Reinsurer As of December 31, 2018 As of December 31, 2018 Commutation Reassumed Par Reassumed UPR Gain
Slide 26: Financial Results
Financial Results December 31, 2018
Slide 27: Fourth Quarter 2018 Results
Fourth Quarter 2018 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended December 31, 4Q-17 2018 2017 Net income (loss) $88 $52 69% Net income (loss) per diluted share $0.83 $0.44 89% Net earned premiums $125 $178 (30)%
Slide 28: Year-End 2018 Results
Year-End 2018 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Year Ended December 31, YE 17 2018 2017 Net income (loss) $521 $730 (29)% Net income (loss) per diluted share $4.68 $5.96 (21)% Net earned premiums $548 $690 (21)% Net
Slide 29: Fourth Quarter and YTD Loss Measures
Fourth Quarter and YTD Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors. Economic loss development excludes the effects of deferred premium revenu
Slide 30: Portfolio Overview
Portfolio Overview December 31, 2018
Slide 31: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of December 31, 2018 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,533 $1,793 $321 $986 ($485) $5,148
Slide 32: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of December 31, 2018 ($ in billions) Non-U.S. Structured – 77% U.S. public finance Finance A Average Rating – 18% Non-U.S. public finance $1.2 Non-U
Slide 33: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing portfolio reduces rating Consolidated Net Par Outstanding Amortization1 agency capital charges, but also embedded future As of December 31, 2018 ($ in billions) earned premiums $640 Public Finance – Currently, the existing portfolio con
Slide 34: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $186.6 billion and makes up 77% of our total U.S. Public Finance insured portfolio as of December 31, 2018 As of December 31, 2018 ($ in billions) • U.S. public finance portfolio generally Higher Other Public perfor
Slide 35: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1 As of December 31, 2018 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 2,3 $1,340 $1,383 Constitutionally Puerto Rico Public Buildings
Slide 36: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of December 31, 2018 1Q 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth – GO
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 Agencies As of December 31, 2018 1Q 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwe
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 December 31, 2018 ($ in billions) • 97% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($282 Other $2.7 France million outstanding) $6.2 $3.2 Australia $2.1 6% 14
Slide 39: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of December 31, 2018 U.S. and Non-U.S. ($ in billions) U.S. • Assured Guaranty’s total structured finance Pooled RMBS exposure of $240.9 billion at December 31, Corporate $4.3 $1.3 12% 2007 has declined by $229.8 billion to $11.1 38% billio
Slide 40: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $4.3 billion U.S. RMBS portfolio is amortizing both on a dollar basis and as a U.S. RMBS by Exposure Type1 percentage of the portfolio As of December 31, 2018 ($ in billions) – Total U.S. RMBS has declined from $29.2 billion at December Subprime 31, 2009 to $4.3 billion
Slide 41: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) December 31, 2018 December 31, 2017 • As of December 31, 2018, Category 1 approximately $3.1 billion (30%) of U.S. public finance $1,767 $2,3
Slide 42: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $16.6 billion • The reassumption of American Overseas and Syncora increased BIG net par outstanding by approximately $32 million and $336 million respectively in 2018 • The largest components of our BIG exposure are Puerto R
Slide 43: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of December 31, 2018 Net Par Internal Type1 Name or Description Outstanding Rating2 PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $1,498 CCC PF Puerto Rico Highways an
Slide 44: Appendix
ASSURED GUARANTY F | Appendix
Slide 45: 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 46: 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 47: 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 48: Reconciliation of Gross Written Premiums to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP Three Months Ended Reconciliation of GWP to PVP December 31, Year Ended December 31, (dollars in millions) 2018 2017 2018 2017 2016 2015 2014 Total GWP $96 $72 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adjustments1 27
Slide 49: Reconciliation of Net Income to Non-GAAP Operating Income
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 Three Months Ended Year Ended Non-GAAP Operating Income Reconciliation December 31, December 31, (dollars in millions, except per share amounts) 2018 2017 2018 2017 Per Diluted Per Diluted Per Diluted Per Diluted Total Share
Slide 50: 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 51: 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) December 31, 2018 September 30, 2018 December 31, 2017 September 30, 2017 December 31, 2016 Total Per Share Total Per Sha
Slide 52: Reconciliation of Shareholders' Equity to 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 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: 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 2018 2019 2020 2021 2022 Insured Net Par Outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $296,318 $
Slide 55: 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 Year Ended December 31, December 31, 2018 2017 2018 2017 Net income (loss) $88 $52 $521 $730 Non-GAAP Operating income 92 91 482 661 Gain (loss) related to FG VIE consolidation i
Slide 56: Assured Guaranty Contacts
Assured Guaranty Contacts: Robert Tucker Senior Managing Director, Investor Relations and Corporate Communications Direct: 212.339.0861 rtucker@agltd.com Andre Thomas Managing Director, Equity Investor Relations Direct: 212.339.3551 athomas@agltd.com Equity Investor Presentation December 31, 2018 55