Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q1 2019 Earnings Presentation
56 slides from Assured Guaranty's earnings presentation, May 2019
Slide 1: Equity Investor Presentation March 31, 2019
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation March 31, 2019
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 • First Quarter 2019 • 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: First Quarter 2019 Accomplishments
First Quarter 2019 Accomplishments • Earned $86 million of non-GAAP operating income1, or $0.82 per share • Increased shareholders' equity per share, non-GAAP operating shareholders' equity1 per share and non-GAAP adjusted book value1 per share, reaching new record highs of $65.21, $62.00 and $86.95
Slide 6: Assured Guaranty Overview
Assured Guaranty Overview
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. ($ in billions) March 31, 2019 September 30, 2009 • We are the leading financial guaranty franchise, with over three decades of Insured Net par outstanding $237.3 $646.6 experience in the municipal and U.S. public finance $181.4 $424.9 structured finan
Slide 8: Assured Guaranty Overview: non-GAAP operating income growth
Assured Guaranty Overview • Since our initial public offering in 2004, we have grown our annual non-GAAP operating income1 from $1.88 per share to $4.34 per share in 2018, a 6% compounded annual growth rate (CAGR) ‒ Our annual non-GAAP operating income grew from $141 million in 2004 to $482 million
Slide 9: 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 May 9, 2019, we
Slide 10: 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 11: Simplified Corporate Structure
Assured Guaranty Overview Simplified Corporate Structure1 Shareholders Assured Guaranty Ltd. • Total investment portfolio and cash of $43 million2 (Head Office – Bermuda; Tax Residence – U.K.) • 1Q-19 net annualized expenses of $32 million • 1Q-19 annualized dividend distribution of $76 million Assu
Slide 12: Underlying Value
Underlying Value
Slide 13: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of March 31, 2019 Nearly 100% of BIG is held for loss A BBB mitigation or other • Predominately consists of highly rated, 19% 5% risk management fixed maturity and short-term strategies investments, 64% rated AA
Slide 14: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 37:1 as of 1Q-19 – Deleveraging is expected to continue in the near term as new business is not expected to fully re
Slide 15: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher than the combination of operating and interest expenses, a spread that fosters capital growth Net Investment Income ($ in millions) Net investment income $423 $417 $404 $393 $403 $408 $395 $396 $392 $361 $347
Slide 16: Historical Growth
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $86.95 $86.06 $77.74 $23.32 $23.39 $66.46 $20.53 $60.87 $1.57 $1.56 $53.27 $15.85 $1.01 $48.26 $46.54 $48.22 $17.07 $46.22 $44.84 $0.72 $41.90 $41.97 $15.34 $0.84 $14.63 $35.66 $7.38 $9.05 $23.30 $18.46 $15.62 $0.69 $20.72 $6
Slide 17: Creating Value
Creating Value
Slide 18: New Business Production: U.S. Public Finance Penetration
New Business Production Penetration in the U.S. Public Finance Market (excluding SGI portfolio) • We are focused on building demand for our guarantees, both in the primary and the secondary markets for U.S. public finance – In 1Q 2019, we insured 163 primary market transactions totaling $2.0 billion
Slide 19: New Business Production: U.S. Structured Finance
Creating Value New Business Production U.S. Structured Finance Business Activity • During 1Q-19, we insured a collateralized loan obligation U.S. Structured PVP1 (excluding SGI reinsurance portfolio)2 ($ in millions) • Focus has been on bilateral transactions to improve policy beneficiaries’ capital
Slide 20: New Business Production: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 1Q-19, we closed a debt service reserve Non-U.S. PVP1 guarantee on a water and sewerage company in (excluding SGI reinsurance portfolio)2 the United Kingdom and provided reinsurance on ($ in millions) an aircraft residual val
Slide 21: Underwriting Principles and Pricing Discipline
Creating Value New Business Production Underwriting Principles and Pricing Discipline Gross Par Written Quarter Ended March 31, 2019 2018 Gross Par Avg. Gross Par Avg. Sector: Written Rating1 Written Rating1 U.S. public finance $2,016 A- $2,004 A- Non-U.S. public finance 176 A- 187 BBB- Total public
Slide 22: Loss Mitigation: Puerto Rico Settlement Agreements
Creating Value Loss Mitigation Puerto Rico Settlement Agreements • In February 2019, consummated a resolution under a restructuring support agreement of the Company’s Puerto Rico Sales Tax Financing Corporation (COFINA) exposure ‒ Paid off the entire exposure of $273 million, plus accrued and unpaid
Slide 23: Alternative Strategies: Acquisitions and Reinsurance of Legacy Monolines
Creating Value Alternative Strategies Acquisitions and Reinsurance of Legacy Monolines • 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 $570 mi
Slide 24: Alternative Strategies: Alternative Investments
Creating Value Alternative Strategies Alternative Investments • The Company continues to investigate additional opportunities • In July 2016, the Company announced the formation of an Alternative Investments group - The Alternative Investments group focuses on deploying a portion of Assured Guaranty
Slide 25: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and non-GAAP adjusted book value1 Commutations Since 2009 Ceded Par Outstanding by Reinsurer As of March 31, 2019 As of March 31, 2019 Commutation Reassumed Par Reassumed UPR Gain / (Lo
Slide 26: Financial Results
Financial Results March 31, 2019
Slide 27: First Quarter 2019 Results: Select Financial Items
First Quarter 2019 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended March 31, 1Q-18 2019 2018 Net income (loss) $54 $197 (73)% Net income (loss) per diluted share $0.52 $1.68 (69)% Net earned premiums $118 $145 (19)%
Slide 28: First Quarter Loss Measures
First Quarter Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors. Economic loss development excludes the effects of deferred premium revenue. The ef
Slide 29: Portfolio Overview
Portfolio Overview March 31, 2019
Slide 30: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of March 31, 2019 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,523 $1,770 $322 $952 ($497) $5,070 Con
Slide 31: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of March 31, 2019 ($ in billions) Non-U.S. Structured – 76% U.S. public finance Finance A Average Rating – 19% Non-U.S. public finance $1.0 Non-U.S.
Slide 32: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing portfolio reduces rating Consolidated Net Par Outstanding Amortization1 agency capital charges, but also embedded future As of March 31, 2019 ($ in billions) earned premiums $640 – Currently, the existing portfolio consists of $226 bill
Slide 33: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $181.4 billion and makes up 76% of our total U.S. Public Finance insured portfolio as of March 31, 2019 As of March 31, 2019 ($ in billions) • U.S. public finance portfolio generally performed well during the recess
Slide 34: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1,2 As of March 31, 2019 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3,4 $1,340 $1,383 Constitutionally Puerto Rico Public Buildings
Slide 35: Puerto Rico Exposure: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of March 31, 2019 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth – GO1 $- $87 $-
Slide 36: Puerto Rico Exposure: Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of March 31, 2019 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth – GO1
Slide 37: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of March 31, 2019 ($ in billions) • 98% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($279 $2.6 Other France Australia million outstanding) $5.9 $3.1 $2.1 6% 7% 5%
Slide 38: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of March 31, 2019 U.S. and Non-U.S. ($ in billions) U.S. • Assured Guaranty’s total structured finance RMBS exposure of $240.9 billion at December 31, Pooled $4.1 Corporate $1.5 13% 2007 has declined by $229.6 billion to $11.3 36% billion t
Slide 39: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $4.1 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 March 31, 2019 – Total U.S. RMBS has declined from $29.2 billion at December ($ in billions) 31, 2009 to $4.1 billion at March 31,
Slide 40: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) March 31, 2019 December 31, 2018 • As of March 31, 2019, approximately Category 1 $3.3 billion (34%) of the aggregate U.S. public finance $1,
Slide 41: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $17.2 billion • The largest components of our BIG exposure are Puerto Rico at 47% and U.S. RMBS at 23% Changes in BIG Net Par Outstanding Full Year Full Year Full Year ($ in millions) 2016 2017 2018 Q1 2019 BIG Net Par Outst
Slide 42: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of March 31, 2019 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 and T
Slide 43: Appendix
ASSURED GUARANTY F | Appendix 5S.
Slide 44: 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 45: 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 46: 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 47: Reconciliation of Gross Written Premiums (GWP) to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP Reconciliation of GWP to PVP Three Months Ended March 31, Year Ended December 31, (dollars in millions) 2019 2018 2018 2017 2016 2015 2014 Total GWP $39 $73 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adjustments1 5 22
Slide 48: Reconciliation of Net Income (Loss) to Non-GAAP Operating Income
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 Three Months Ended Non-GAAP Operating Income Reconciliation March 31, (dollars in millions, except per share amounts) 2019 2018 Per Diluted Per Diluted Total Share Total Share Net income (loss) $54 $0.52 $197 $1.68 Less pre-t
Slide 49: Reconciliation of Net Income to Non-GAAP Operating Income (2009-2018)
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 (2009-2018) Non-GAAP Operating income reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2018 2017 2016 2015 2014 Total Per Share Total Per Share Total Per Share Total Per Share Total Per S
Slide 50: Reconciliation of Net Income to Non-GAAP Operating Income (2004-2008)
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 (2004-2008) Non-GAAP Operating income reconciliation Year Ended December 31, (dollars in millions, except per share amounts) 2008 2007 2006 2005 2004 Total Per Share Total Per Share Total Per Share Total Per Share Total Per S
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) March 31, 2019 December 31, 2018 March 31, 2018 December 31, 2017 Total Per Share Total Per Share Total Per Share Total P
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 (2011-2018)
Appendix Reconciliation of Shareholders’ Equity to Non-GAAP Adjusted Book Value1 (2011-2018) Non-GAAP Adjusted book value 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
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 Q1 2019 2019 2020 2021 2022 Insured Net Par Outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $2
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 March 31, 2019 2018 Net income (loss) $54 $197 Non-GAAP Operating income 86 155 Gain (loss) related to FG VIE consolidation included in non-GAAP operating income - 5 Average shar
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 March 31, 2019 55