Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q2 2017 Earnings Presentation
60 slides from Assured Guaranty's earnings presentation, August 2017
Slide 1: Equity Investor Presentation June 30, 2017
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation June 30, 2017
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 • Second Quarter and First Half 2017 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
Slide 5: Second Quarter 2017 Accomplishments
Second Quarter 2017 Accomplishments • Earned $141 million of operating income1(non-GAAP), or $1.16 per share, which includes $5 million, or $0.05 per share, attributable to the effect of consolidating financial guaranty variable interest entities (FG VIEs) • Increased shareholders' equity per share,
Slide 6: First Half 2017 Accomplishments
First Half 2017 Accomplishments • Earned $414 million of operating income1(non-GAAP), or $3.32 per share, which includes $10 million, or $0.08 per share, attributable to the effect of consolidating financial guaranty variable interest entities (FG VIEs) • Generated $169 million of new business produ
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview
Slide 8: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty franchise, with over three decades of ($ in billions) June 30, 2017 September 30, 2009 experience in the municipal and structured finance markets Net par outstanding $290.6 $646.6 U.S. public finance $232.4 $424.
Slide 9: Assured Guaranty Overview: Operating Income Growth
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual operating income1 from $141 million in 2004 to $895 million in 2016, a 17% compounded annual growth rate (CAGR). • Operating income (non-GAAP)1 has grown through acquisitions, new business production and
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 August 2, 2017,
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 is $27 million2 (Head Office – Bermuda; Tax Residence – U.K.) • 2Q 2017 annualized expenses of $40 million • 2Q 2017 annualized dividend distribution of $72 Assured Guar
Slide 13: Underlying Value
Underlying Value
Slide 14: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of June 30, 2017 Nearly 100% of BIG is held for loss A mitigation or other • Highly rated fixed maturity and short- 17% BBB 2% risk management term investments, 69% rated AA or strategies higher, and cash 4 BIG 1
Slide 15: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 45:1 as of 2Q-17 – Deleveraging should continue in the near term as new business is not expected to fully replace th
Slide 16: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher Net Investment Income ($ in millions) than the combination of operating and interest expenses, a spread Estimated net that fosters capital growth investment income $423 $420 Net investment income $404 $393 $40
Slide 17: Historical Growth
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $73.48 $66.46 $60.87 $18.31 $15.85 $53.27 $0.83 $48.26 $46.54 $48.22 $17.07 $46.22 $0.72 $44.84 $41.90 $41.97 $15.34 $0.84 $14.63 $35.66 $7.38 $9.05 $0.69 $23.30 $20.72 $18.46 $15.62 $29.54 $5.31 $0.80 $54.34 $26.06 $9.15 $7.
Slide 18: Creating Value
Creating Value
Slide 19: New Business Production: U.S. Public Finance Penetration
Creating Value New Business Production (Par Insured) Penetration in the U.S. Public Finance Market • We are focused on building demand for our New Issue U.S. Public Finance guaranties, both in the primary and the Insured Par Sold and Transaction Penetration1 secondary markets for U.S. public finance
Slide 20: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • Focus has been on bilateral transactions to improve policy beneficiaries’ capital management efficiency U.S. Structured PVP1 • During 1Q 2017, we increased our ($ in millions) reinsurance exposure on an existing capit
Slide 21: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 2Q-17, we guaranteed a U.K. university housing transaction, provided a senior liquidity guarantee as part of a European infrastructure Non-U.S. PVP1 by Quarter refinancing and provided reinsurance on aircraft ($ in millions)
Slide 22: Underwriting and Pricing Discipline
Creating Value New Business Production Underwriting and Pricing Discipline • Continued focus on underwriting and pricing principles • Gross par of new business written increased for the 2nd quarter of 2017 year-over-year. - Gross par written increased to $5.1 billion in the 2nd quarter of 2017 from
Slide 23: 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 $570 million to non-GAAP adjusted book valu
Slide 24: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and non-GAAP adjusted book value1 Commutations Since 2009 Ceded Par Outstanding by Reinsurer As of June 30, 2017 As of June 30, 2017 Commutation Reassumed Par Reassumed UPR Gain / (Loss
Slide 25: Loss Mitigation Bond Purchases
Creating Value Loss Mitigation Bond Purchases • Since 2008, for loss mitigation purposes, we have strategically purchased bonds we had previously insured. Besides reducing our losses, these purchases can potentially relieve rating agency capital charges, increase future investment income and increas
Slide 26: Agreements to Terminate Contracts
Creating Value Loss Mitigation Agreements to Terminate Contracts • Actively pursue termination of insurance contracts – At beneficiary’s request: may keep all economics, possibly more – At our request: share economics with beneficiary – To eliminate high capital charges: share or possibly give up so
Slide 27: Financial Results
Financial Results June 30, 2017
Slide 28: Second Quarter 2017 Results
Second Quarter 2017 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended June 30, 2Q-16 2017 2016 Net income (loss) $153 $146 5% Net income (loss) per diluted share $1.24 $1.09 14% Net earned premiums $162 $214 (24)% Net
Slide 29: First Half 2017 Results
First Half 2017 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Half-Year Ended June 30, 1H-16 2017 2016 Net income (loss) $470 $205 129% Net income (loss) per diluted share $3.76 $1.51 149% Net earned premiums $326 $397 (18)% Ne
Slide 30: Second Quarter and First Half Loss Measures
Second Quarter and First Half Loss Measures Economic loss development (all contracts): • Represents the expected change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors that affect the ultimate loss experience. Economic loss development
Slide 31: Portfolio Overview
Portfolio Overview June 30, 2017
Slide 32: Capital Base: Claims-Paying Resources
Capital Base (U.S. Statutory Basis) Claims-Paying Resources As of June 30, 2017 AGUS AGL ($ in millions) Consolidated AG Re1 Consolidated Claims-paying resources Policyholders' surplus $3,862 $1,122 $4,984 Contingency reserve 2,068 - 2,068 Qualified statutory capital 5,930 1,122 7,052 Unearned premi
Slide 33: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of June 30, 2017 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,168 $1,845 $485 $1,122 ($636) $4,984 Co
Slide 34: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of June 30, 2017 ($ in billions) Non-U.S. Structured – 80% U.S. public finance Finance A+ Average Rating – 14% Non-U.S. public finance $2.0 Non-U.S.
Slide 35: Net Par Outstanding Amortization
Net Par Outstanding Amortization Consolidated Net Par Outstanding Amortization1 • Amortization of the existing portfolio reduces rating As of June 30, 2017 ($ in billions) agency capital charges, but also embedded future earned premiums $640 Public Finance $617 Structured Finance • New direct or ass
Slide 36: 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 $232.4 billion and makes up 80% of our total As of June 30, 2017 insured portfolio as of June 30, 2017 ($ in billions) • U.S. public finance portfolio generally Higher Other Public performed well
Slide 37: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1 As of June 30, 2017 Net Par Gross Par ($ in millions) Outstanding 3 Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 4,5 $1,495 $1,577 Constitutionally Puerto Rico Public Buildings A
Slide 38: Puerto Rico: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies1 As of June 30, 2017 3Q 4Q 2027- 2032- 2037- 2042- ($ in millions) 2017 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2031 2036 2041 2047 Total Commonwealth – GO $93 $0 $75 $82 $13
Slide 39: Puerto Rico: Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies1 As of June 30, 2017 3Q 4Q 2027- 2032- 2037- 2042- ($ in millions) 2017 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2031 2036 2041 2047 Total Commonwealth – GO $132 $0 $
Slide 40: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of June 30, 2017 ($ in billions) • 95% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($217 Other $2.7 France million outstanding) $6.1 $3.0 6% Australia 14% 7% $3.1
Slide 41: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of June 30, 2017 U.S. and Non-U.S. ($ in billions) • We expect Assured Guaranty’s current global Pooled structured finance insured portfolio ($17.7 Corporate $4.9 28% billion as of June 30, 2017) to amortize more U.S. rapidly than our publi
Slide 42: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $5.1 billion U.S. RMBS portfolio is amortizing both on a dollar basis and as a U.S. RMBS by Exposure Type percentage of the portfolio As of June 30, 2017 ($ in billions) – Total U.S. RMBS has declined from $29.2 billion at Subprime December 31, 2009 to $5.1 billion at Ju
Slide 43: Direct Pooled Corporate Obligations Exposures
Direct Pooled Corporate Obligations Exposures • Most of our direct pooled corporate exposure is Direct Pooled Corporate Obligations highly rated and well protected By Asset Class1 As of June 30, 2017 – 62% rated AAA – Average credit enhancement of 32% $1.2 $2.4 50% • Within direct pooled corporate e
Slide 44: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) June 30, 2017 December 31, 2016 • As of June 30, 2017, approximately Category 1 $4.9 billion (38%) of the aggregate U.S. public finance $2,39
Slide 45: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $15.2 billion1 • The acquisition of MBIA UK and a reassumption increased BIG net par outstanding by $789 million and $165 million, respectively • The largest components of our BIG exposure are Puerto Rico at 38% and U.S. RMB
Slide 46: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of June 30, 2017 Net Par Internal Type1 Name or Description Outstanding Rating PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $ 1,682 CCC- PF Puerto Rico Highways and T
Slide 47: Appendix
ASSURED GUARANTY F | Appendix
Slide 48: 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 49: 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 50: Explanation of Non-GAAP Financial Measures
Appendix Explanation of Non-GAAP Financial Measures Operating Income (non-GAAP): Management believes that operating income (non-GAAP) 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 o
Slide 51: Explanation of Non-GAAP Financial Measures (Cont'd)
Appendix Explanation of Non-GAAP Financial Measures (Cont’d) Non-GAAP Adjusted Book Value: 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 adjus
Slide 52: Reconciliation of Gross Written Premiums to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP1 Reconciliation of GWP to PVP Three Months Ended Year Ended December 31, (dollars in millions) June 30, 2017 March 31, 2017 2016 2015 2014 2013 Total GWP $79 $111 $154 $181 $104 $123 Less: Intallment GWP and other GAAP adjustments 25 55
Slide 53: Reconciliation of Net Income to Operating Income (non-GAAP)
Appendix Reconciliation of Net Income (Loss) to Operating Income (non-GAAP)1 Three Month Ended Six Months Ended Operating Income Reconciliation June 30, June 30, (dollars in millions, except per share amounts) 2017 2016 2017 2016 Per Diluted Per Diluted Per Diluted Per Diluted Total Share Total Shar
Slide 54: Reconciliation of Net Income to Operating Income (2004-2016)
Appendix Reconciliation of Net Income (Loss) to Operating Income (non-GAAP)1 (2004-2016) Non-GAAP Operating income reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2016 2015 2014 2013 2012 2011 2010 Total Per Share Total Per Share Total Per Share Total Per Share
Slide 55: Reconciliation of Shareholders' Equity to Adjusted Book Value (2004-2009)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2004-2009) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2Q 2004 2004 2005 2006 2007 2008 2009 Total Per Share Total Per Share Total Per Share Total Per Share Total Per Sha
Slide 56: Reconciliation of Shareholders' Equity to Adjusted Book Value (2010-2016)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2010-2016) Non-GAAP Adjusted book value reconciliation (dollars in millions, except per share amounts) 2010 2011 2012 2013 2014 2015 2016 Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share
Slide 57: Reconciliation of Shareholders' Equity to 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) June 30, 2017 March 31, 2017 December 31, 2016 June 30, 2016 March 31, 2016 December 31, 2015 Total Per Share Total Per S
Slide 58: 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 2Q-2017 2017 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 59: 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 Six Months Ended June 30, June 30, 2017 2016 2017 2016 Net income (loss) $153 $146 $470 $205 Operating income (non-GAAP) 141 136 414 259 Gain (loss) related to FG VIE consolidati
Slide 60: 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 June 30, 2017 59