Assured Guaranty Ltd. · NYSE:AGO

Assured Guaranty — Q2 2017 Earnings Presentation

60 slides from Assured Guaranty's earnings presentation, August 2017

  1. Slide 1: Equity Investor Presentation June 30, 2017

    EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation June 30, 2017

  2. 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

  3. 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

  4. 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

  5. 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,

  6. 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

  7. Slide 7: Assured Guaranty Overview

    Assured Guaranty Overview

  8. 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.

  9. 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

  10. 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,

  11. 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

  12. 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

  13. Slide 13: Underlying Value

    Underlying Value

  14. 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

  15. 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

  16. 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

  17. 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.

  18. Slide 18: Creating Value

    Creating Value

  19. 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

  20. 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

  21. 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)

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. Slide 27: Financial Results

    Financial Results June 30, 2017

  28. 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

  29. 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

  30. 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

  31. Slide 31: Portfolio Overview

    Portfolio Overview June 30, 2017

  32. 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

  33. 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

  34. 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.

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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 $

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. Slide 47: Appendix

    ASSURED GUARANTY F | Appendix

  48. 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

  49. 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

  50. 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

  51. 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

  52. 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

  53. 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

  54. 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

  55. 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

  56. 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

  57. 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

  58. 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

  59. 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

  60. 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

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