Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Investor Presentation (June 2009)
59 slides from Assured Guaranty's investor presentation, Jun 16, 2009
Slide 1: Investor Presentation June 2009
Investor Presentation June 2009 Dominic Frederico, President & CEO Bob Mills, CFO Assured Guaranty Ltd. (NYSE: AGO)
Slide 2: Forward-looking statements
Forward-looking statements are being made in this presentation. Actual results could differ materially from these statements. For example, the Company’s forward looking statements, including its calculations of adjusted book value, PVP, net present value of estimated future installment premiums in f
Slide 3: Business Overview
Business Overview Dominic Frederico, President & CEO
Slide 4: Compelling Investment Opportunity
Compelling Investment Opportunity Assured has a leading market position and a strong future market opportunity FSA acquisition is strategically and financially compelling Combines the two premier financial guaranty franchises FSA has a well respected position in the market and a strong portfolio bui
Slide 5: FSA Acquisition Takes Us to the Next Level
FSA Acquisition Takes Us to the Next Level FSA has a longstanding and successful track record, particularly in U.S. public finance Insured portfolio (excluding financial products segment) of $417 billion as of March 31, 2009, with U.S. public finance accounting for 71% Acquisition price of $8761 mil
Slide 6: FSA Acquisition Enhances our Market Position
FSA Acquisition Enhances our Market Position The combination forms the global leader in financial guaranty $655 billion in net par outstanding (March 31, 2009) Combined claims paying resources of $13 billion and invested assets of $10 billion Provides issuers and investors with a large and stable so
Slide 7: Growing Unearned Premium Base Drives Future Results
Growing Unearned Premium Base Drives Future Results Estimated future earned premiums is net unearned premium reserves (“UPR”) plus estimated future installment premiums (calculations for 2004 and 2005 include statutory unearned premium reserves and net present value of estimated future installment p
Slide 8: Increasing Revenue Stream
Increasing Revenue Stream Significant growth in Assured’s franchise has generated a substantial increase in our revenue base Both financial guaranty direct and reinsurance contributed to our growth FSA acquisition adds to our in-force revenue base $641 million in 2008 net earned premium and investme
Slide 9: Earned Premium Leverage Drives ROE
Earned Premium Leverage Drives ROE Estimated future earned premiums is net unearned premium reserves plus estimated future installment premiums (calculations for 2004 and 2005 include statutory unearned premium reserves and net present value of estimated future installment premiums3). 2004, 2005, 20
Slide 10: A Diversified Portfolio of Business
A Diversified Portfolio of Business Net Par Outstanding As of March 31, 2009 ($ in billions) $654.5 billion Average Rating1 A+ $237.2 billion Average Rating1 A+ $417.3 billion Average Rating1 AA- Pro Forma Assured Guaranty FSA (ex. FP segment) 1. Ratings represent Assured’s and FSA’s internal rating
Slide 11: Net Par Outstanding – Structured Finance
Net Par Outstanding – Structured Finance Pro Forma For FSA Acquisition Net Par Outstanding As of March 31, 2009 ($ in billions) Pro Forma $93.0 billion (39% of Total AGO) $99.3 billion (24% of Total FSA) $192.3 billion (29% of Pro Forma) Assured Guaranty FSA (ex. FP segment) Int'l 22% Other U.S. 14%
Slide 12: Net Par Outstanding – U.S. RMBS
Net Par Outstanding – U.S. RMBS Pro Forma For FSA Acquisition Net Par Outstanding As of March 31, 2009 ($ in billions) Assured Guaranty FSA (ex. FP segment) Pro Forma $17.8 billion (8% of Total AGO) Average Rating1 BBB+ $16.5 billion (4% of Total FSA) Estimated Average Rating1 BBB/BIG $34.3 billion
Slide 13: Assured's Strategic Priorities
Assured’s Strategic Priorities Exercise strict underwriting discipline Proactive and rigorous underwriting standards have protected our company Our portfolio is stress-tested for adverse economic, financial and market environments Expand our direct business through dual operating platforms Capitaliz
Slide 14: Financial Overview
Financial Overview Bob Mills, CFO
Slide 15: Solid Growth in Book Value Per Share
Solid Growth in Book Value Per Share Book value per share has increased 19% since our IPO 39% excluding mark-to-market Adjusted book value has grown every year since the IPO New business production drives increase Adjusted book value has increased 71% since the IPO 87% excluding mark-to-market March
Slide 16: Acquisition has Potential for Significant Earnings Accretion
Acquisition has Potential for Significant Earnings Accretion Reflects purchase accounting adjustments. ($ in millions) FSA 2008 1 Net earned premiums $535.3 CDS installment earned premiums 126.9 Net investment income 264.2 FSA total revenue $926.3 Run rate operating expenses (net of synergies) 70.0
Slide 17: Assured Second Quarter Outlook
Assured Second Quarter Outlook Selected second quarter financial information for Assured is summarized as follows: Net earned premiums and realized gains on CDS will approximate $95 million New business production (PVP) of approximately $130 million Investment income will approximate $44 million Ope
Slide 18: Compelling Investment Opportunity
Compelling Investment Opportunity Assured has a leading market position and a strong future market opportunity FSA acquisition is strategically and financially compelling Combines the two premier financial guaranty franchises FSA has a well respected position in the market and a strong portfolio bui
Slide 19: Earned Premium Leverage Drives ROE
Earned Premium Leverage Drives ROE Estimated future earned premiums is net unearned premium reserves plus estimated future installment premiums (calculations for 2004 and 2005 include statutory unearned premium reserves and net present value of estimated future installment premiums3) 2004, 2005, 200
Slide 20: Appendix: Assured Guaranty Ltd. Financial Guaranty Portfolio Review
Appendix: Assured Guaranty Ltd. Financial Guaranty Portfolio Review
Slide 21: Net Par Outstanding Diversified By Sector
Net Par Outstanding Diversified By Sector Assured’s portfolio is well diversified by asset class 26% Super Senior and AAA 21% AA 34% A 15% BBB 4% below investment grade (“BIG”) High overall credit rating despite downgrades in our U.S. RMBS portfolio A+ average internal rating, down from AA- we have
Slide 22: Consolidated U.S. RMBS
26 Consolidated U.S. RMBS Our $17.8 billion U.S. RMBS portfolio of has experienced material downgrades since year-end 2007 Average rating of BBB+ at March 31, 2009 versus AA at year-end 2007 95% was underwritten in our financial guaranty direct segment according to our stringent underwriting standar
Slide 23: U.S. RMBS by Vintage and Rating
27 U.S. RMBS by Vintage and Rating Assured U.S. RMBS by Rating1 As of March 31, 2009 ($ in billions) $5.5 $2.4 $1.1 $6.1 $2.7 Assured U.S. RMBS by Vintage As of March 31, 2009 ($ in billions) $1.4 $0.9 $7.9 $5.0 $2.6 1. Ratings represent Assured’s internal ratings. Please see slide 25 footnote 1 for
Slide 24: Loss and Loss Adjustment Expenses
Loss and Loss Adjustment Expenses The majority of Assured’s cumulative losses for 2008 and first quarter 2009 are on second lien U.S. RMBS exposures Financial Guaranty Direct and Reinsurance March 31, 2009 Total 2008 and Loss and Loss As of March 31, 2009 Net Par 1Q-09 Adjustment ($ in millions) Out
Slide 25: Consolidated U.S. RMBS Alt-A Exposure
29 Consolidated U.S. RMBS Alt-A Exposure1 93% of our Alt-A was underwritten by our financial guaranty direct segment, largely after June 2007, using our significantly stressed assumptions Many transactions were underwritten on a secondary basis and had the benefit of some seasoning Limited exposures
Slide 26: Direct U.S. RMBS Performance Alt-A
30 Direct U.S. RMBS Performance Alt-A First Lien and Alt-A Option ARMs ($ in millions) U.S. Alt-A First Lien Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2005 376 $ 59.8% 11.7% 1.0% 10.6% 13 2006 360 73.3% 39.4% 3.3
Slide 27: Consolidated U.S. RMBS Subprime Exposure
31 Consolidated U.S. RMBS Subprime Exposure $4.4 $1.5 $0.1 $0.5 $0.0 Subprime by Year Insured As of March 31, 2009 ($ in billions) $6.5 billion, AA- average rating1 Our subprime portfolio remains highly rated 48.6% rated triple-A or super senior1 Average subordination is 54.6% Only 3.4% of par is in
Slide 28: Direct U.S. RMBS Performance Subprime First Lien
32 Direct U.S. RMBS Performance Subprime First Lien ($ in millions) U.S. Subprime First Lien Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2005 3,580 $ 31.5% 63.6% 7.1% 41.9% 42 2006 1,900 46.4% 41.3% 8.9% 42.8% 49 2
Slide 29: Consolidated U.S. RMBS HELOC Exposure
33 Consolidated U.S. RMBS Home Equity Line of Credit (HELOC) Exposure Assured’s HELOC book consists principally of two Countrywide deals underwritten in 2005 and 2007 Current par insured of $1.6 billion Average rating3 of CC Only 29% of HELOCs are in reinsurance segment No transaction after 2006 Cum
Slide 30: Direct U.S. RMBS Performance Prime HELOC
34 Direct U.S. RMBS Performance Prime HELOC ($ in millions) U.S. Prime HELOC Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2005 572 $ 31.7% 0.0% 11.9% 15.0% 2 2006 N/A N/A N/A N/A N/A N/A 2007 575 64.3% 0.0% 16.9% 12
Slide 31: Consolidated U.S. RMBS Closed End Second Liens Exposure
35 Consolidated U.S. RMBS Closed End Second Liens Exposure Limited exposure to closed end seconds liens $415 million in total exposure is Less than $10 million in reinsurance segment All but $8 million of exposure is 2007 vintage 5 direct transactions totaling $405 million 3 deals for $304 million r
Slide 32: Direct U.S. RMBS Performance Closed End Seconds
36 Direct U.S. RMBS Performance Closed End Seconds ($ in millions) U.S. Prime CES Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2005 N/A N/A N/A N/A N/A N/A 2006 N/A N/A N/A N/A N/A N/A 2007 405 61.2% 21.5% 30.5% 21.
Slide 33: Non-RMBS U.S. Structured Finance Exposure
37 Non-RMBS U.S. Structured Finance Exposure Assured’s non-RMBS U.S structured finance exposures are principally comprised of Pooled corporate obligations Commercial mortgage-backed securities Consumer receivables Commercial receivables Structured credit Insurance securitizations Non-RMBS U.S. struc
Slide 34: Pooled Corporate Obligations
38 Pooled Corporate Obligations Our pooled corporate exposure is highly rated and well-protected Average credit enhancement of 31.6% 74.8% rated2 AAA, AA+ average rating Pooled corporate obligations of trust preferred securities were downgraded during first quarter 2009 due to increased deferrals an
Slide 35: Pooled Corporate Obligations By Collateral Type
39 Pooled Corporate Obligations By Collateral Type ($ in millions) 1. Assured's internal rating. Assured's scale is comparable to that of the nationally recognized rating agencies. The super senior category, which is not generally used by rating agencies, is used by the Company in instances where As
Slide 36: U.S. Consumer Receivables
40 U.S. Consumer Receivables Assured Guaranty Ltd. Direct U.S. Consumer Receivables by Year Insured As of March 31, 2009 ($ in billions) $2.6 billion, AA+ average rating1 $0.0 $0.4 $1.0 $1.2 U.S. consumer receivable exposures are well protected Average rating of A+ For student loans and auto loans c
Slide 37: U.S. Consumer Receivables By Collateral Type
41 U.S. Consumer Receivables By Collateral Type ($ in millions) Distribution of Consumer Receivables by Asset Class as of March 31, 2009 Asset class: Net Par Outstanding % Average Rating 1 Avg. Initial Credit Enhancement 2 Avg. Current Enhancement 2 Student loans 1,261 $ 47.7% AAA 7.2% 8.5% Credit c
Slide 38: Appendix: FSA Financial Guaranty Portfolio Review
Appendix: FSA Financial Guaranty Portfolio Review
Slide 39: U.S. RMBS
43 U.S. RMBS FSA’s $16.5 billion U.S. RMBS portfolio of has experienced material downgrades since year-end 2007 Average rating of BBB at March 31, 2009 versus AA at year-end 2007 Entire U.S. RMBS directly underwritten by FSA No U.S. RMBS underwritten since August 2008 FSA’s U.S. RMBS portfolio is am
Slide 40: U.S. RMBS by Vintage and Rating
44 U.S. RMBS by Vintage and Rating U.S. RMBS by Rating As of March 31, 2009 ($ in billions) $0.9 $0.2 $2.5 $10.6 $16.5 billion, BBB average rating $2.3 U.S. RMBS by Vintage As of March 31, 2009 ($ in billions) $16.5 billion $4.6 $2.0 $0.1 $7.7 $2.1 FSA’s internal rating. Please see slide 56 footnote
Slide 41: Loss and Loss Adjustment Expenses
45 Loss and Loss Adjustment Expenses The majority of FSA’s cumulative losses for 2008 and first quarter 2009 were on second lien U.S. RMBS exposures March 31, 2009 Total 2008 and Loss and Loss As of March 31, 2009 Net Par 1Q-09 Adjustment ($ in millions) Outstanding Incurred Losses 12 Expense Reserv
Slide 42: U.S. RMBS Alt-A First Lien Exposure
46 U.S. RMBS Alt-A First Lien Exposure1 FSA’s portfolio was largely underwritten since 2006 and all were rated AAA at closing FSA’s Alt-A exposures have an average rating of BIG due to significant downgrades in 2008 and 2009 7% rated triple-A or super senior 93% rated below investment grade Loss3 re
Slide 43: U.S. RMBS Performance Alt-A First Lien and Alt-A Option ARMs
47 U.S. RMBS Performance Alt-A First Lien and Alt-A Option ARMs ($ in millions) Distribution of FSA Mortgage-Backed Securities Issued January 1, 2004 or Later by Exposure Type, Average Pool Factor, Subordination, Cumulative Losses and 60+ Day Delinquencies as of March 31, 2009 1 2. Pool factor is th
Slide 44: U.S. RMBS Subprime Exposure
48 U.S. RMBS Subprime Exposure $0.1 $2.4 $1.4 $0.5 $0.1 Subprime by Year Insured As of March 31, 2009 ($ in billions) $4.5 billion, A average rating1 FSA’s subprime portfolio remains highly rated 35% rated triple-A or super senior1 Average subordination left is 26.4% on transactions insured after Ja
Slide 45: U.S. RMBS Performance Subprime First Lien
49 U.S. RMBS Performance Subprime First Lien ($ in millions) Distribution of FSA U.S. Mortgage-Backed Securities Issued January 1, 2005 or Later by Exposure Type, Average Pool Factor, Subordination, Cumulative Losses and 60+ Day Delinquencies as of March 31, 2009 1 2. Pool factor is the percentage o
Slide 46: U.S. RMBS HELOC Exposure
50 U.S. RMBS Home Equity Line of Credit (HELOC) Exposure Current par insured of $5.9 billion Average rating2 of BBB- $3.5 billion of HELOCs are below investment grade $2.4 billion of HELOCs remain investment grade Loss reserves for HELOC exposures were $566 million Paid losses incurred on HELOCs in
Slide 47: U.S. RMBS Performance HELOC Exposure
51 U.S. RMBS Performance HELOC Exposure ($ in millions) U.S. Prime HELOC Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2004 and prior 497 $ 24.0% 2.9% 1.7% 3.3% 3 2005 1,065 25.7% 1.9% 4.2% 7.8% 5 2006 2,232 48.6% 0.
Slide 48: U.S. RMBS Alt-A Closed End Second Liens Exposure
52 U.S. RMBS Alt-A Closed End Second Liens Exposure Limited exposure to closed end seconds liens All vintage is 2007 and 2006 12 transactions totaling $1.4 billion 7 deals for $1.1 billion rated BIG2 Cumulative incurred financial guaranty losses on were $226 million as of March 31, 2009 $1.4 billion
Slide 49: U.S. RMBS Performance Closed End Seconds
53 U.S. RMBS Performance Closed End Seconds ($ in millions) U.S. Prime CES Year issued: Net Par Outstanding Pool Factor 2 Subordination 3 Cumulative Losses 4 60+ Day Delinquencies 5 Number of transactions 2004 N/A N/A N/A N/A N/A N/A 2005 N/A N/A N/A N/A N/A N/A 2006 464 $ 67.0% 0.0% 42.5% 21.6% 2 2
Slide 50: Non-RMBS U.S. Structured Finance Exposure
54 Non-RMBS U.S. Structured Finance Exposure FSA’s non-RMBS U.S structured finance exposures are principally comprised of Pooled corporate obligations Consumer receivables Other U.S. non-RMBS structured finance obligations Non-RMBS U.S. structured finance credit experience has been generally strong
Slide 51: Pooled Corporate Obligations
55 Pooled Corporate Obligations FSA’s pooled corporate exposure is generally highly rated and well-protected Average credit enhancement of 21.9% 93% rated1 super senior or AAA, AAA average rating Less than 1% rated below investment grade $180 million of Trust Preferreds (Bank and Insurance Company O
Slide 52: Pooled Corporate Obligations By Collateral Type
56 Pooled Corporate Obligations By Collateral Type ($ in millions) FSA’s internal ratings as of 3/31/09. Insured transactions previously insured by another monoline (i.e., where FSA would be the second to pay) are shown with a rating equal to the higher of FSA's estimate of the rating of the underly
Slide 53: U.S. Consumer Receivables
57 U.S. Consumer Receivables U.S. Consumer Receivables by Year Insured As of March 31, 2009 ($ in billions) $5.4 billion, BBB- average rating1 $0.5 $1.1 $1.4 $2.5 U.S. consumer receivable exposures are well protected Average rating of BBB- $5.0 billion in auto receivable transactions have 19.7% aver
Slide 54: U.S. Consumer Receivables By Collateral Type
58 U.S. Consumer Receivables By Collateral Type ($ in millions) FSA’s internal rating. Please see slide 56 footnote 1 for more explanation. "Average Credit Enhancement" is intended to provide a measure of the amount of equity and/or subordinate tranches that are junior in the capital structure to FS
Slide 55: Appendix: Explanation of Non-GAAP Financial Measures
Appendix: Explanation of Non-GAAP Financial Measures
Slide 56: Appendix: Explanation of Non-GAAP Financial Measures
Appendix: Explanation of Non-GAAP Financial Measures Present value of financial guaranty and credit derivative gross written premiums, or PVP, which is a non-GAAP financial measure, is defined as gross upfront and installment premiums received and the present value of gross estimated future installm
Slide 57: Appendix: PVP – Reconciliation to Gross Written Premiums
Appendix: PVP1 – Reconciliation to Gross Written Premiums For an explanation of PVP, a non-GAAP financial measure, please refer to the Appendix: Explanation of Non-GAAP Financial Measures. Q1 2009 amount represents the difference in management estimates for the discount rate applied to future instal
Slide 58: Appendix: Reconciliation of Operating Income to Net Income (Loss)
Appendix: Reconciliation of Operating Income to Net Income (Loss)2 The quarters ended March 31, 2009 and 2008 included a fair value after-tax gain of $12.8 million, or $0.14 per diluted share, and $5.5 million, or $0.07 per diluted share, respectively, related to Assured Guaranty Corp.'s committed c
Slide 59: Assured Guaranty Contacts
Assured Guaranty Contacts: Sabra Purtill Managing Director Global Communications & Investor Relations Direct: 212 408 6040 spurtill@assuredguaranty.com Ross Aron Associate, Investor Relations Direct: 212 261 5509 raron@assuredguaranty.com Investor Presentation June 2009