Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q3 2020 Earnings Presentation
67 slides from Assured Guaranty's earnings presentation, November 2020
Slide 1: Equity Investor Presentation September 30, 2020
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation September 30, 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 • Third Quarter 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 assets – Investme
Slide 5: Third Quarter 2020 Accomplishments
Third Quarter 2020 Accomplishments • Earned $48 million of adjusted operating income1, or $0.58 per share • Increased shareholders' equity per share, adjusted operating shareholders' equity1 per share and adjusted book value1 per share, reaching new record highs of $79.63, $73.80 and $108.02, respec
Slide 6: YTD 2020 Accomplishments
YTD 2020 Accomplishments • Earned $200 million of adjusted operating income1, or $2.28 per share • Generated $264 million of new insurance business production PVP1, the largest amount of insurance premium in the first nine months of a year in over a decade, excluding portfolio reinsurance transactio
Slide 7: COVID-19 Market Disruption
COVID-19 Market Disruption Strength of Financial Guaranty Business Model • The Company insures scheduled payments of principal and interest when due ‒ Insurance regulations forbid acceleration of our obligations without consent • Municipal issuers typically have the following tools to avoid defaulti
Slide 8: COVID-19 Market Disruption: Augmented Periodic Surveillance Process
COVID-19 Market Disruption Augmented Periodic Surveillance Process • The Company’s Surveillance Department (with a staff of over three dozen) is closely monitoring those high and medium risk sectors and credits it believes are most at risk as a result of the direct and indirect consequences of the C
Slide 9: Assured Guaranty Overview
Assured Guaranty Overview
Slide 10: Assured Guaranty Overview
Assured Guaranty Overview • We are the leading financial guaranty Assured Guaranty Ltd. franchise, with over three decades of ($ in billions) Sept 30, 2020 Sept 30, 2009 experience in the municipal and structured finance markets Insured net par outstanding $233.1 $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: Assured Guaranty Overview: Adjusted Operating Income per Share
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual adjusted operating income1 from $1.88 per share to $3.91 per share in 2019, a 5% compounded annual growth rate (CAGR) ‒ Our annual adjusted operating income1 grew from $141 million in 2004 to $391 million
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 November 5, 202
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 $7 million2 (Head Office – Bermuda; Tax Residence – U.K.) • Annual net expenses of $33 million Assured Guaranty Re Ltd. • Annual dividend distr
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 September 30, 2020 59% rated AA or higher A Nearly 100% of BIG • Approximately $1.1 billion invested in liquid, BB
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 3Q-20 – Over the course of the next year, we expect that our rate of new business written should tend to equal or exceed that of exposures amo
Slide 19: Net Investment Income and Operating Expenses
Underlying Value Insurance Segment and Corporate Division Net Investment Income1 and Operating Expenses • Net investment income1 is expected to cover operating expenses of the Insurance segment and Corporate division • Net investment income1 excludes investments with a fair value of approximately $4
Slide 20: Historical Growth: Adjusted Book Value per Share
Underlying Value Historical Growth Adjusted Book Value1 per Share $108.02 $96.99 $86.18 $32.44 $77.86 $28.26 $23.32 $1.78 $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 $14.63 $73.80 $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 Q3 2020, we insured 260 primary market transactions totaling $7.5 billion, and 32 secondary market policies totaling $0.
Slide 23: U.S. Structured Finance Business Activity
Creating Value Insurance U.S. Structured Finance Business Activity • During 2Q-20, we insured an insurance securitization and two whole business securitizations U.S. Structured PVP1 (excluding SGI reinsurance portfolio)2 ($ in millions) • During 1Q-20, we insured a portion of a whole business securi
Slide 24: Non-U.S. Business Activity
Creating Value Insurance Non-U.S. Business Activity • During 3Q-20, AGE SA guaranteed a solar bond transaction in Spain, and AGE UK guaranteed a Non-U.S. PVP1 U.K. university student housing transaction. (excluding SGI reinsurance portfolio)2 ($ in millions) • During 2Q-20, new business included a g
Slide 25: Underwriting Principles and Pricing Discipline
Creating Value Insurance Underwriting Principles and Pricing Discipline Gross Par Written Quarter Ended September 30, YTD September 30, 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. public
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 $60 million of cash to BlueMountain at closing and contrib
Slide 27: Financial Results
Financial Results September 30, 2020
Slide 28: Third Quarter 2020 Results: Select Financial Items
Third Quarter 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended September 30, 3Q-19 2020 2019 Net income (loss) attributable to AGL $86 $69 25% Net income (loss) attributable to AGL per diluted share $1.02 $0.70
Slide 29: YTD 2020 Results: Select Financial Items
YTD 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) YTD September 30, YTD-19 2020 2019 Net income (loss) attributable to AGL $214 $265 (19)% Net income (loss) attributable to AGL per diluted share $2.43 $2.61 (7)% Net earned
Slide 30: Third Quarter 2020 Results: Select Segment Results
Third Quarter 2020 Results Select Segment Results Select Segment Results ($ in millions) Quarter Ended September 30, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) $81 $(12) $(18) $(3) $48 Net earned premiums and credit derivative revenues $113 $- $- $(2) $111
Slide 31: YTD 2020 Results: Select Segment Results
YTD 2020 Results Select Segment Results Select Segment Results ($ in millions) YTD September 30, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) $320 $(30) $(83) $(7) $200 Net earned premiums and credit derivative revenues $345 $- $- $(4) $341 Net investment in
Slide 32: Expected Loss and LAE to Be Paid: Three Months
Consolidated Insurance Expected Loss and LAE to Be Paid Three Months Ended September 30, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Three Months Ended September 30, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Be
Slide 33: Expected Loss and LAE to Be Paid: Nine Months
Consolidated Insurance Expected Loss and LAE to Be Paid Nine Months Ended September 30, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Nine Months Ended September 30, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Bene
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 ̶ GAAP financial guaranty accounti
Slide 35: Insurance Portfolio Overview
Insurance Portfolio Overview September 30, 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 September 30, 2020 ($ in millions) AGM AGC MAC AG Re7 Eliminations2 Consolidated Claims-paying resources Policyholders' surplus $2,671 $1,734 $275 $823 $(478) $5,025
Slide 37: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of September 30, 2020 ($ in billions) Non-U.S. Structured – 74% U.S. public finance Finance A Average Rating – 22% Non-U.S. public finance $0.7 – 4%
Slide 38: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing insurance portfolio reduces rating agency capital charges, but also embedded future earned premiums – Currently, the existing $233 billion insurance portfolio consists of $224 billion of public finance and $9 billion of structured finan
Slide 39: U.S. Public Finance Net Par Outstanding
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $172.6 billion and makes up 74% of our total U.S. Public Finance insured portfolio as of September 30, 2020 As of September 30, 2020 ($ in billions) • U.S. public finance portfolio generally performed well during th
Slide 40: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1,2 As of September 30, 2020 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3 $1,112 $1,150 Constitutionally Puerto Rico Public Building
Slide 41: Puerto Rico Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of September 30, 2020 4Q 2030- 2035- 2040- 2045- ($ in millions) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2039 2044 2047 Total Commonwealth – GO $- $15 $37 $14 $73 $68
Slide 42: Puerto Rico Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of September 30, 2020 4Q 2030- 2035- 2040- 2045- ($ in millions) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2039 2044 2047 Total Commonwealth – GO $- $74 $95 $7
Slide 43: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of September 30, 2020 ($ in billions) • 99% of non-U.S. exposure is Public Finance – Direct sovereign debt is limited to Poland ($295 Canada million) and Mexico ($50 million) $2.4 France Other Australia $3.3 $
Slide 44: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of September 30, 2020 Life Insurance Financial Products 1 ($ in billions) Transactions $2.0 • Assured Guaranty’s total structured finance (GICs) exposure of $9.3 billion through September 30, $0.8 21% 2020 reflects a $231.6 billion reductio
Slide 45: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $3.1 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 September 30, 2020 – Assured Guaranty’s U.S. RMBS exposure of $3.1 billion ($ in billions) through September 30, 2020 reflects a $2
Slide 46: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) September 30, 2020 December 31, 2019 • As of September 30, 2020, BIG Category 1 approximately $2.4 billion (30%) of U.S. public finance $1,31
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 51% and U.S. RMBS at 19% • The reassumption of an insurance portfolio from American Overseas Reinsurance Company Limited in Q2 2020 increased BIG
Slide 48: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of September 30, 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 Gua
Slide 49: Asset Management Overview
Asset Management Overview September 30, 2020
Slide 50: Asset Management: AUM
Asset Management • AssuredIM currently has $17.0 billion in assets under management – CLOs had net inflows of $123 million Assets Under Management As of September 30, 2020 – Opportunity funds had small net outflows of $27 million ($ in billions) – Liquid strategies were flat – Wind-down funds, which
Slide 51: Asset Management: Assets Under Management
Asset Management Assets Under Management Select GAAP Results ($ in Quarter-to-Date (June 30, 2020 to September 30, 2020) Year-to-Date (December 31, 2019 to September 30, 2020) millions) Opportunity Liquid Wind-Down Opportunity Liquid Wind-Down CLOs Funds Strategies Funds Total CLOs Funds Strategies
Slide 52: Appendix
ASSURED GUARANTY F | Appendix
Slide 53: 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 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 underwriting results of the Company. Adjusted operating income is defined as net income (loss) attributa
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 (GWP) to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP Three Months Ended Reconciliation of GWP to PVP September 30, Year Ended December 31, (dollars in millions) 2020 2019 2019 2018 2017 2016 2015 2014 Total GWP $121 $69 $677 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adj
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 Nine Months Ended Adjusted Operating Income Reconciliation September 30, September 30, (dollars in millions, except per share amounts) 2020 2019 2020 2019 Per Diluted Per Diluted Per Dil
Slide 59: Reconciliation 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 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) September 30, 2020 June 30, 2020 December 31, 2019 September 30, 2019 June 30, 2019 December 31, 2018 Total Per Share Total Per Share Tota
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 Q3 2020 Insured net par outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $296,318 $
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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income (loss) attributable to AGL $86 69 $214 265 Adjusted operating income2 48 77 200 304 Average share
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. The Company uses measures of its AUM in its decision- making process and intends to use a measure of change in AUM in its calculation of certain components
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 September 30, 2020 6