Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q2 2019 Earnings Presentation
59 slides from Assured Guaranty's earnings presentation, August 2019
Slide 1: Equity Investor Presentation June 30, 2019
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation June 30, 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 • Second 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 – Investm
Slide 5: Second Quarter 2019 Accomplishments
Second Quarter 2019 Accomplishments • Earned $141 million of non-GAAP operating income1, or $1.38 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 $67.35, $63.48 and $88.
Slide 6: YTD 2019 Accomplishments
YTD 2019 Accomplishments • Earned $227 million of non-GAAP operating income1, or $2.20 per share • Generated $96 million of new business production1 • Repurchased an additional 4.4 million common shares ($190 million) at an average price of $42.91 per share2 • In February 2019, consummated a resolut
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview
Slide 8: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. ($ in billions) June 30, 2019 September 30, 2009 • We are the leading financial guaranty franchise, with over three decades of Insured net par outstanding $235.4 $646.6 experience in the municipal and U.S. public finance $180.5 $424.9 structured financ
Slide 9: Assured Guaranty Overview: Non-GAAP Operating Income per Share
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 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 7, 2019,
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 of $27 million2 (Head Office – Bermuda; Tax Residence – U.K.) • 2Q-19 net annualized expenses of $32 million • 2Q-19 annualized dividend distribution of $76 million Assu
Slide 13: Underlying Value
Underlying Value
Slide 14: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of June 30, 2019 Nearly 100% of BIG is held for loss A mitigation or other • Predominately consists of highly rated, 18% BBB 6% risk management fixed maturity and short-term strategies investments, and cash; 66%
Slide 15: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 37:1 as of 2Q-19 – Deleveraging is expected to continue in the near term as new business is not expected to fully re
Slide 16: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher than the combination of operating and interest expenses, a spread that fosters capital growth Net Investment Income ($ in millions) Net investment income $423 $417 $404 $393 $403 $408 $395 $396 $384 $361 $347
Slide 17: Historical Growth
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $88.67 $86.06 $77.74 $23.62 $23.32 $66.46 $20.53 $60.87 $1.57 $1.57 $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 $63.48 $2
Slide 18: Creating Value
Creating Value
Slide 19: New Business Production: Penetration in the U.S. Public Finance Market
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 2Q 2019, we insured 260 primary market transactions totaling $3.7 billion
Slide 20: New Business Production: U.S. Structured Finance Business Activity
Creating Value New Business Production U.S. Structured Finance Business Activity • During 1Q-19, we insured a collateralized loan obligation U.S. Structured PVP1 (excluding SGI reinsurance portfolio)2 ($ in millions) • Focus has been on bilateral transactions to improve policy beneficiaries’ capital
Slide 21: New Business Production: Non-U.S. Business Activity
Creating Value New Business Production Non-U.S. Business Activity • During 2Q-19, we closed a guarantee on a debt Non-U.S. PVP1 refinancing of Spanish solar plants and a Scottish (excluding SGI reinsurance portfolio)2 housing association transaction ($ in millions) $42 • During 1Q-19, we closed a de
Slide 22: Underwriting Principles and Pricing Discipline
Creating Value New Business Production Underwriting Principles and Pricing Discipline Gross Par Written1 Quarter Ended June 30, Half-Year Ended June 30, 2019 2018 2019 2018 Gross Par Avg. Gross Par Avg. Gross Par Avg. Gross Par Avg. Sector: Written Rating2 Written Rating2 Written Rating2 Written Rat
Slide 23: 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 24: 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 25: Alternative Strategies: Alternative Investments
Creating Value Alternative Strategies Alternative Investments • 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’s excess capital to pursue acquisitions and develop new busines
Slide 26: Alternative Strategies: BlueMountain
Creating Value Alternative Strategies BlueMountain • In August 2019, the Company entered into an agreement to purchase all of the outstanding equity interests of BlueMountain and its associated entities for a purchase price of approximately $160 million, subject to certain pre- and post-closing adju
Slide 27: Commutations
Creating Value Commutations • Reassumption of previously ceded business has increased the unearned premium reserve and non-GAAP adjusted book value1 Commutations Since 2009 Ceded Par Outstanding by Reinsurer As of June 30, 2019 As of June 30, 2019 Commutation Reassumed Par Reassumed UPR Gain / (Loss
Slide 28: Financial Results
Financial Results June 30, 2019
Slide 29: Second Quarter 2019 Results
Second Quarter 2019 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended June 30, 2Q-18 2019 2018 Net income (loss) $142 $75 89% Net income (loss) per diluted share $1.39 $0.67 107% Net earned premiums $112 $136 (18)% Ne
Slide 30: YTD 2019 Results
YTD 2019 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Half-Year Ended June 30, 1H-18 2019 2018 Net income (loss) $196 $272 (28)% Net income (loss) per diluted share $1.90 $2.37 (20)% Net earned premiums $230 $281 (18)% Net inv
Slide 31: Second Quarter Loss Measures
Second Quarter Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors. Economic loss development excludes the effects of deferred premium revenue. The e
Slide 32: Portfolio Overview
Portfolio Overview June 30, 2019
Slide 33: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of June 30, 2019 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,530 $1,729 $230 $914 ($406) $4,997 Cont
Slide 34: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of June 30, 2019 ($ in billions) Non-U.S. Structured – 77% U.S. public finance Finance A Average Rating – 19% Non-U.S. public finance $0.8 Non-U.S.
Slide 35: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing portfolio reduces rating Consolidated Net Par Outstanding Amortization1 agency capital charges, but also embedded future As of June 30, 2019 ($ in billions) earned premiums $640 – Currently, the existing portfolio consists of $225 billi
Slide 36: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $180.5 billion and makes up 77% of our total U.S. Public Finance insured portfolio as of June 30, 2019 As of June 30, 2019 ($ 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 Agencies1,2 As of June 30, 2019 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3,4 $1,340 $1,383 Constitutionally Puerto Rico Public Buildings A
Slide 38: Puerto Rico Exposure: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of June 30, 2019 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth – GO1 $87 $- $141 $15 $3
Slide 39: Puerto Rico Exposure: Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of June 30, 2019 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth – GO1 $122 $- $
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, 2019 ($ in billions) • 98% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($288 $2.6 Other France million outstanding) $6.0 $3.2 Australia $2.1 6% 7% 13%
Slide 41: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of June 30, 2019 U.S. and Non-U.S. ($ in billions) • Assured Guaranty’s total structured finance Pooled U.S. exposure of $240.9 billion at December 31, Corporate RMBS $1.5 15% $3.8 2007 has declined by $230.6 billion to $10.3 37% billion th
Slide 42: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $3.8 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 June 30, 2019 – Total U.S. RMBS has declined from $29.2 billion at December ($ in billions) 31, 2009 to $3.8 billion at June 30, 2
Slide 43: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) June 30, 2019 December 31, 2018 • As of June 30, 2019, approximately Category 1 $2.8 billion (31%) of the aggregate U.S. public finance $1,67
Slide 44: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $17.9 billion • BIG credits account for only 3.8% of Assured Guaranty’s total exposure, the lowest level in nearly 10 years. • The largest components of our BIG exposure are Puerto Rico at 51% and U.S. RMBS at 19% Changes in
Slide 45: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of June 30, 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 Tr
Slide 46: Appendix
ASSURED GUARANTY
Slide 47: 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 48: 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 49: 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 50: 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 June 30, Year Ended December 31, (dollars in millions) 2019 2018 2018 2017 2016 2015 2014 Total GWP $51 $393 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adjustments1 7 58
Slide 51: Reconciliation of Net Income (Loss) to Non-GAAP Operating Income
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 Three Months Ended Six Months Ended Non-GAAP Operating Income Reconciliation June 30, June 30, (dollars in millions, except per share amounts) 2019 2018 2019 2018 Per Diluted Per Diluted Per Diluted Per Diluted Total Share To
Slide 52: 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 53: 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 54: 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) June 30, 2019 March 31, 2019 December 31, 2018 June 30, 2018 March 31, 2018 December 31, 2017 Total Per Share Total Per S
Slide 55: 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 56: 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 57: 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 Q2 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 58: 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, 2019 2018 2019 2018 Net income (loss) $142 $75 $196 $272 Non-GAAP Operating income 141 74 227 229 Gain (loss) related to FG VIE consolidation i
Slide 59: 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, 2019 58