Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q4 2020 Earnings Presentation
67 slides from Assured Guaranty's earnings presentation, February 2021
Slide 1: Equity Investor Presentation December 31, 2020
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation December 31, 2020
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 and Year End 2020 • 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 ass
Slide 5: Fourth Quarter 2020 Accomplishments
Fourth Quarter 2020 Accomplishments • Earned $56 million of adjusted operating income1, or $0.69 per share • Increased shareholders' equity per share, adjusted operating shareholders' equity1 per share and adjusted book value1 per share, reaching new record highs of $85.66, $78.49 and $114.87, respe
Slide 6: Year-End 2020 Accomplishments
Year-End 2020 Accomplishments • Earned $256 million of adjusted operating income1, or $2.97 per share • Generated $390 million of new insurance business production PVP1, the second largest annual amount of insurance premium underwritten in over a decade, excluding portfolio reinsurance transactions
Slide 7: COVID-19 Market Disruption
COVID-19 Market Disruption Strength of Financial Guaranty Business Model • The Company insures scheduled payments of principal and interest when due ‒ Insurance regulations forbid acceleration of our obligations without consent • Municipal issuers typically have the following tools to avoid defaulti
Slide 8: COVID-19 Market Disruption: Augmented Periodic Surveillance Process
COVID-19 Market Disruption Augmented Periodic Surveillance Process • The Company’s Surveillance Department (with a staff of over three dozen) is closely monitoring those sectors and credits it believes are most at risk as a result of the direct and indirect consequences of the COVID-19 pandemic, inc
Slide 9: Assured Guaranty Overview
Assured Guaranty Overview
Slide 10: Assured Guaranty Overview
Assured Guaranty Overview • We are the leading financial guaranty Assured Guaranty Ltd. franchise, with over three decades of ($ in billions) Dec 31, 2020 Sept 30, 2009 experience in the municipal and structured finance markets Insured net par outstanding $234.2 $646.6 • We serve the bond insurance
Slide 11: Corporate Structure
Assured Guaranty Ltd. Corporate Structure Assured Guaranty Ltd. Hamilton, Bermuda Publicly Traded Holding Company (NYSE: AGO) A (stable outlook) / Baa2 (stable outlook) issuer credit ratings Assured Guaranty Re Ltd (AG Re) Assured Guaranty US Holdings (AGUS) Financial Guaranty Reinsurance U.S. Holdi
Slide 12: Adjusted Operating Income per Share by Year
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual adjusted operating income1 from $1.88 per share to $2.97 per share in 2020 • Repurchases of our shares improve adjusted operating income1 per share, adjusted operating shareholders’ equity1 per share and
Slide 13: Track Record of Creating Shareholder Value
Assured Guaranty Overview Track Record of Creating Shareholder Value • We have returned excess capital to shareholders by repurchasing our common shares and distributing dividends – Since 2013, when we started our capital management strategy of repurchasing our common shares, through February 25, 20
Slide 14: 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 15: Simplified Corporate Structure With Dividend Capacity
Assured Guaranty Overview Simplified Corporate Structure With Dividend Capacity1 Shareholders Assured Guaranty Ltd. • Total investment portfolio and cash of $190 million2 (Head Office – Bermuda; Tax Residence – U.K.) • Annual net expenses of $34 million Assured Guaranty Re Ltd. • Annual dividend dis
Slide 16: Underlying Value
Underlying Value
Slide 17: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio • Predominately consists of highly rated, fixed Total Invested Assets and Cash1,2 maturity and short-term investments, and cash; As of December 31, 2020 57% rated AA or higher Nearly 100% of BIG • Approximately $1.0 billion invested in liquid, A BBB
Slide 18: Deleveraging
Underlying Value Deleveraging • Our insured net par outstanding to adjusted operating shareholders’ equity1 has improved from 157:1 as of 4Q-09 to 38:1 as of 4Q-20 – We expect that our rate of new business written should tend to equal or exceed that of exposures amortized in a given year, stabilizin
Slide 19: Net Investment Income and Operating Expenses
Underlying Value Net Investment Income1 and Operating Expenses • Net investment income1 excludes the returns generated from alternative investments with a fair value of approximately $450 million as of December 31, 2020, composed primarily of AssuredIM funds Net Investment Income1 ($ in millions) Ne
Slide 20: Historical Growth
Underlying Value Historical Growth Adjusted Book Value1 per Share $114.87 $96.99 $34.50 $86.18 $77.86 $28.26 $1.88 $23.32 $66.52 $20.53 $1.77 $60.99 $1.69 $53.39 $15.85 $1.13 $48.26 $46.54 $46.22 $48.37 $17.07 $0.78 $45.06 $41.90 $41.97 $15.34 $0.96 $78.49 $14.63 $35.66 $7.38 $9.05 $18.46 $15.62 $0.
Slide 21: Creating Value
Creating Value
Slide 22: Insurance: Penetration in the U.S. Public Finance Market
Creating Value Insurance Penetration in the U.S. Public Finance Market (excluding SGI portfolio) • Assured Guaranty saw strong new business production for U.S. public finance – In 2020, we insured 938 primary market transactions totaling over $20 billion, and 207 secondary market policies totaling $
Slide 23: U.S. Structured Finance Business Activity
Creating Value Insurance U.S. Structured Finance Business Activity • In 2020, we insured an insurance securitization, a structured settlements transaction and multiple whole business U.S. Structured PVP1 securitizations (excluding SGI reinsurance portfolio)2 ($ in millions) • Focus has been on bilat
Slide 24: Non-U.S. Business Activity
Creating Value Insurance Non-U.S. Business Activity • During 2020, the international transactions have Non-U.S. PVP1 included deals underwritten both through AGUK (excluding SGI reinsurance portfolio)2 and AGE: ($ in millions) – AGUK transactions included a U.K. university student housing and restru
Slide 25: Underwriting Principles and Pricing Discipline
Creating Value Insurance Underwriting Principles and Pricing Discipline Gross Par Written Quarter Ended December 31 Year Ended December 31, 2020 2019 2020 2019 Gross Par Avg. Gross Par Avg. Gross Par Avg. Gross Par Avg. Sector: Written Rating1 Written Rating1 Written Rating1 Written Rating1 U.S. pub
Slide 26: AssuredIM
Creating Value AssuredIM • On October 1, 2019, Assured Guaranty completed the acquisition of all the outstanding equity interests in BlueMountain and its associated entities for a purchase price of $157 million - Assured Guaranty contributed approximately $100 million of cash to AssuredIM for its wo
Slide 27: Financial Results
Financial Results December 31, 2020
Slide 28: Fourth Quarter 2020 Results
Fourth Quarter 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended December 31, 4Q-19 2020 2019 Net income (loss) attributable to AGL $148 $137 8% Net income (loss) attributable to AGL per diluted share $1.82 $1.42
Slide 29: YTD 2020 Results
YTD 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) YTD December 31, YTD-19 2020 2019 Net income (loss) attributable to AGL $362 $402 (10)% Net income (loss) attributable to AGL per diluted share $4.19 $4.00 5% Net earned pr
Slide 30: Fourth Quarter 2020 Select Segment Results
Fourth Quarter 2020 Results Select Segment Results Select Segment Results ($ in millions) Quarter Ended December 31, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) $109 $(20) $(28) $(5) $56 Net earned premiums and credit derivative revenues $159 $- $- $(1) $15
Slide 31: Year-End 2020 Select Segment Results
Year-End 2020 Results Select Segment Results Select Segment Results ($ in millions) Year ended December 31, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) $429 $(50) $(111) $(12) $256 Net earned premiums and credit derivative revenues $504 $- $- $(5) $499 Net
Slide 32: Consolidated Insurance Expected Loss and LAE to Be Paid
Consolidated Insurance Expected Loss and LAE to Be Paid Three Months Ended December 31, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Three Months Ended December 31, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Bene
Slide 33: Consolidated Insurance Expected Loss and LAE to Be Paid (Year)
Consolidated Insurance Expected Loss and LAE to Be Paid Year Ended December 31, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Year Ended December 31, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Benefit) (Paid) Reco
Slide 34: Insurance Loss Measures
Insurance Loss Measures Loss and LAE reported on the GAAP Consolidated Statement of Operations: • Represents loss and loss adjustment expenses (LAE) for contracts accounted for as insurance and not those accounted for as credit derivatives or those accounted for as FG VIEs ̶ GAAP financial guaranty
Slide 35: Insurance Portfolio Overview
Insurance Portfolio Overview December 31, 2020
Slide 36: Four Discrete Insurance Companies with Separate Capital Bases
Four Discrete Insurance Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of December 31, 2020 ($ in millions) AGM AGC MAC AG Re7 Eliminations2 Consolidated Claims-paying resources Policyholders' surplus $2,864 $1,717 $305 $701 $(510) $5,077
Slide 37: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of December 31, 2020 ($ in billions) Non-U.S. Structured – 73% U.S. public finance Finance A Average Rating – 23% Non-U.S. public finance $0.6 – 4%
Slide 38: Net Par Outstanding Amortization
Net Par Outstanding Amortization • During the first six of the last 12 years, the U.S. structured finance portfolio had a large effect on the amortization of the consolidated portfolio; since then, the effect of the structured finance portfolio has decreased as its size has shrunk significantly whil
Slide 39: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $171.6 billion and makes up 73% of our total insured portfolio as of U.S. Public Finance December 31, 2020 As of December 31, 2020 ($ in billions) • U.S. public finance portfolio generally performed well during the
Slide 40: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1,2 As of December 31, 2020 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3 $1,112 $1,150 Constitutionally Puerto Rico Public Buildings
Slide 41: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of December 31, 2020 1Q 2Q 3Q 4Q 2031- 2036- 2041- ($ in millions) 2021 2021 2021 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2035 2040 2042 Total Commonwealth – GO $- $- $16
Slide 42: Puerto Rico Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of December 31, 2020 1Q 2Q 3Q 4Q 2031- 2036- 2041- ($ in millions) 2021 2021 2021 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2035 2040 2042 Total Commonwealth – GO $
Slide 43: 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, 2020 ($ in billions) • 99% of non-U.S. exposure is Public Finance – Direct sovereign debt is limited to Poland ($301 million) and Mexico ($50 million) Australia $2.0 5% 6% 4% 11% France United
Slide 44: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of December 31, 2020 ($ in billions) Life Insurance Transactions • Assured Guaranty’s total structured finance Financial $2.6 exposure of $9.5 billion through December 31, Products 1 (GICs) 27% 2020 reflects a $165.1 billion reduction from
Slide 45: Consolidated U.S. RMBS
Consolidated U.S. RMBS U.S. RMBS by Exposure Type • Our $3.0 billion U.S. RMBS portfolio is amortizing As of December 31, 2020 both on a dollar basis and as a percentage of the ($ in billions) portfolio Subprime First Lien – Assured Guaranty’s U.S. RMBS exposure of $3.0 billion on $1.8 December 31,
Slide 46: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) December 31, 2020 December 31, 2019 • As of December 31, 2020, BIG Category 1 approximately $2.9 billion (36%) of U.S. public finance $1,777
Slide 47: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $18.8 billion • The largest components of our BIG exposure are Puerto Rico at 47% and U.S. RMBS at 19% • The reassumption of American Overseas in Q2 2020 increased BIG exposure by $144 million BIG Net Par Outstanding BIG Net
Slide 48: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of December 31, 2020 Net Par Internal Type1 Name or Description Outstanding Rating2 PF Puerto Rico Highways and Transportation Authority $1,310 CCC PF Puerto Rico General Obligation, Appropriations and Guar
Slide 49: Asset Management Overview
Asset Management Overview December 31, 2020
Slide 50: Asset Management
Asset Management • AssuredIM currently has $17.3 billion in assets under management – CLOs had net inflows of $1,002 million in 2020 Assets Under Management As of December 31, 2020 – Opportunity funds had net inflows of $410 million in 2020 ($ in billions) – Liquid strategies had net inflows of $370
Slide 51: Asset Management: Assets Under Management
Asset Management Assets Under Management Select GAAP Results Quarter-to-Date (September 30, 2020 to December 31, 2020) Year-to-Date (December 31, 2019 to December 31, 2020) ($ in millions) Opportunity Liquid Wind-Down Opportunity Liquid Wind-Down CLOs Funds Strategies Funds Total CLOs Funds Strategi
Slide 52: Appendix
ASSURED GUARANTY
Slide 53: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures The Company discloses both (a) financial measures determined in accordance with GAAP and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered
Slide 54: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures Adjusted Operating Income: Management believes that adjusted operating income is a useful measure because it clarifies the understanding of the operating results of the Company. Adjusted operating income is defined as net income (loss) attributable
Slide 55: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Adjusted Operating Shareholders’ Equity and Adjusted Book Value: Management believes that adjusted operating shareholders’ equity is a useful measure because it excludes the fair value adjustments on investments, credit derivatives and CCS
Slide 56: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Adjusted Operating Return on Equity (Adjusted Operating ROE): Adjusted Operating ROE represents adjusted operating income for a specified period divided by the average of adjusted operating shareholders’ equity at the beginning and the end
Slide 57: 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) 2020 2019 2020 2019 2018 2017 2016 2015 2014 Total GWP $120 $518 $454 $677 $612 $307 $154 $181 $104 Less: Installment GWP and othe
Slide 58: Reconciliation of Net Income to Adjusted Operating Income
Appendix Reconciliation of Net Income (Loss) Attributable to AGL to Adjusted Operating Income1 Three Months Ended Year Ended Adjusted Operating Income Reconciliation December 31, December 31, (dollars in millions, except per share amounts) 2020 2019 2020 2019 Per Diluted Per Diluted Per Diluted Per
Slide 59: Reconciliation of Net Income to Adjusted Operating Income (2010-2019)
Appendix Reconciliation of Net Income (Loss) to Adjusted Operating Income1 (2010-2019) Adjusted Operating Income1 Reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2019 2018 2017 2016 2015 Total Per Share Total Per Share Total Per Share Total Per Share Total Per
Slide 60: Reconciliation of Net Income to Adjusted Operating Income (2004-2009)
Appendix Reconciliation of Net Income (Loss) to Adjusted Operating Income1 (2004-2009) Adjusted Operating Income1 Reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2009 2008 2007 2006 2005 Total Per Share Total Per Share Total Per Share Total Per Share Total Per
Slide 61: Reconciliation of Shareholders' Equity to Adjusted Book Value
Appendix Reconciliation of Shareholders’ Equity to Adjusted Book Value1 Adjusted book value1 reconciliation As of (dollars in millions, except per share amounts) December 31, 2020 September 30, 2020 December 31, 2019 September 30, 2019 December 31, 2018 Total Per Share Total Per Share Total Per Shar
Slide 62: Reconciliation of Shareholders' Equity to Adjusted Book Value (2004-2010)
Appendix Reconciliation of Shareholders’ Equity to Adjusted Book Value1 (2004-2010) Adjusted Book Value1 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 Total Share Total Sha
Slide 63: Reconciliation of Shareholders' Equity to Adjusted Book Value (2011-2018)
Appendix Reconciliation of Shareholders’ Equity to Adjusted Book Value1 (2011-2018) Adjusted Book Value1 Reconciliation (dollars in millions, except per share amounts) 2011 2012 2013 2014 2015 2016 2017 2018 Per Per Per Per Per Per Per Total Share Total Share Total Share Total Share Total Share Tota
Slide 64: Calculation of Adjusted Operating Portfolio Leverage
Appendix Calculation of Adjusted Operating Portfolio Leverage Adjusted Operating Leverage Actual (dollars in millions, except leverage) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Insured net par outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $296,318 $264
Slide 65: Reconciliation of GAAP ROE to Adjusted Operating ROE
Appendix Reconciliation of GAAP ROE1 to Adjusted Operating ROE1,2 ROE Reconciliation (dollars in millions) Three Months Ended Year Ended December 31, December 31, 2020 2019 2020 2019 Net income (loss) attributable to AGL $148 137 $362 402 Adjusted operating income2 56 87 256 391 Average shareholders
Slide 66: Assets Under Management
Appendix Assets Under Management Assets Under Management: The Company uses AUM as a metric to measure progress in its Asset Management segment. Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM. However, we believe AUM is a useful metric for assessing t
Slide 67: 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, 2020 66