Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q3 2019 Earnings Presentation
58 slides from Assured Guaranty's earnings presentation, November 2019
Slide 1: Equity Investor Presentation September 30, 2019
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation September 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 • Third Quarter 2019 and YTD 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 asse
Slide 5: Third Quarter 2019 Accomplishments
Third Quarter 2019 Accomplishments • Earned $77 million of non-GAAP operating income1, or $0.79 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 $68.94, $64.48 and $90.18
Slide 6: YTD 2019 Accomplishments
YTD 2019 Accomplishments • Earned $304 million of non-GAAP operating income1, or $3.00 per share • Generated $177 million of new business production1 • Repurchased an additional 7.8 million common shares ($340 million) at an average price of $43.43 per share2 • In February 2019, consummated a resolu
Slide 7: Assured Guaranty Overview
Assured Guaranty Overview
Slide 8: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty ($ in billions) September 30, 2019 September 30, 2009 franchise, with over three decades of experience in the municipal and structured Insured net par outstanding $229.4 $646.6 finance markets U.S. public finance
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 income1 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 November 7, 201
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 $41 million2 (Head Office – Bermuda; Tax Residence – U.K.) • 3Q-19 net annualized expenses of $31 million • 3Q-19 annualized dividend distribution of $75 million Assu
Slide 13: Underlying Value
Underlying Value
Slide 14: High-Quality Investment Portfolio
Underlying Value High-Quality Investment Portfolio Total Invested Assets and Cash1,2 As of September 30, 2019 A Nearly 100% of BIG • Predominately consists of highly rated, is held for loss 18% BBB mitigation or other fixed maturity and short-term 7% risk management investments, and cash; 66% rated
Slide 15: Deleveraging While Maintaining Total Invested Assets
Underlying Value Deleveraging While Maintaining Total Invested Assets • Our insured net par outstanding to non-GAAP operating shareholders’ equity1 has declined from 157:1 in 4Q-09 to 37:1 as of 3Q-19 – Deleveraging continues as new business is not currently completely replacing the amortization of
Slide 16: Net Investment Income Generates Capital
Underlying Value Net Investment Income Generates Capital • Net investment income is higher than the combination of operating and interest expenses, a spread that fosters capital growth Net Investment Income ($ in millions) Net investment income $423 $417 $404 $393 $403 $408 $395 $396 $389 $361 $347
Slide 17: Historical Growth: Non-GAAP Adjusted Book Value per Share
Underlying Value Historical Growth Non-GAAP Adjusted Book Value1 per Share $90.18 $86.06 $77.74 $24.09 $23.32 $66.46 $20.53 $60.87 $1.61 $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 $64.48 $2
Slide 18: Creating Value
Creating Value
Slide 19: Insurance: Penetration in the U.S. Public Finance Market
Creating Value Insurance 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 3Q 2019, we insured 197 primary market transactions totaling $4.0 billio
Slide 20: U.S. Structured Finance Business Activity
Creating Value Insurance U.S. Structured Finance Business Activity • During 3Q-19, we entered into a commitment to insure an insurance reserve financing U.S. Structured PVP1 transaction (excluding SGI reinsurance portfolio)2 ($ in millions) • During 1Q-19, we insured a collateralized $23 loan obliga
Slide 21: Non-U.S. Business Activity
Creating Value Insurance Non-U.S. Business Activity • During 3Q-19, we closed a guarantee on a debt Non-U.S. PVP1 financing for the construction of university (excluding SGI reinsurance portfolio)2 student accommodations in the United Kingdom ($ in millions) $42 • During 2Q-19, we closed a guarantee
Slide 22: Underwriting Principles and Pricing Discipline
Creating Value Insurance Underwriting Principles and Pricing Discipline Gross Par Written1 Quarter Ended September 30, YTD September 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 Rating2 U.S. public
Slide 23: Puerto Rico Settlement Agreements
Creating Value Insurance 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 inter
Slide 24: Commutations
Creating Value Insurance 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 September 30, 2019 As of September 30, 2019 Commutation Reassumed Par Reassu
Slide 25: Acquisitions and Reinsurance of Legacy Monolines
Creating Value Insurance 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 shareholders’ equity1 and $570 million to non
Slide 26: Asset Management and Alternative Investments
Creating Value Asset Management and Alternative Investments • On October 1, 2019, Assured Guaranty completed the acquisition of all of the outstanding equity interests in BlueMountain and its associated entities for approximately $160 million - Assured Guaranty contributed $60 million of cash to Blu
Slide 27: Financial Results
Financial Results September 30, 2019
Slide 28: Third Quarter 2019 Results
Third Quarter 2019 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended September 30, 3Q-18 2019 2018 Net income (loss) $69 $161 (57)% Net income (loss) per diluted share $0.70 $1.47 (52)% Net earned premiums $123 $142 (
Slide 29: YTD 2019 Results
YTD 2019 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) YTD September 30, YTD 18 2019 2018 Net income (loss) $265 $433 (39)% Net income (loss) per diluted share $2.61 $3.83 (32)% Net earned premiums $353 $423 (17)% Net investmen
Slide 30: Third Quarter Loss Measures
Third Quarter Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors. Economic loss development excludes the effects of deferred premium revenue. The ef
Slide 31: Portfolio Overview
Portfolio Overview September 30, 2019
Slide 32: Four Discrete Operating Companies with Separate Capital Bases
Four Discrete Operating Companies with Separate Capital Bases Consolidated Statutory-Basis Claims-Paying Resources and Exposures As of September 30, 2019 ($ in millions) AGM AGC MAC AG Re8 Eliminations3 Consolidated Claims-paying resources Policyholders' surplus $2,473 $1,756 $245 $838 $(418) $4,894
Slide 33: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of September 30, 2019 ($ in billions) Non-U.S. Structured – 77% U.S. public finance Finance A Average Rating – 19% Non-U.S. public finance $0.8 Non-
Slide 34: Net Par Outstanding Amortization
Net Par Outstanding Amortization • Amortization of the existing portfolio reduces rating Consolidated Net Par Outstanding Amortization1 agency capital charges, but also embedded future As of September 30, 2019 ($ in billions) earned premiums $640 – Currently, the existing portfolio consists of $219
Slide 35: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $176.5 billion and makes up 77% of our total U.S. Public Finance insured portfolio as of September 30, 2019 As of September 30, 2019 ($ in billions) • U.S. public finance portfolio generally Higher Other Public perf
Slide 36: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1,2 As of September 30, 2019 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3 $1,253 $1,294 Constitutionally Puerto Rico Public Building
Slide 37: Puerto Rico Exposure: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of September 30, 2019 4Q 1Q 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2020 2020 2020 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Commonwealth
Slide 38: 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 September 30, 2019 4Q 1Q 2Q 3Q 4Q 2029- 2034- 2039- 2044- ($ in millions) 2019 2020 2020 2020 2020 2021 2022 2023 2024 2025 2026 2027 2028 2033 2038 2043 2047 Total Comm
Slide 39: 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, 2019 ($ in billions) • 98% of non-U.S. exposure is Public Finance Canada – Direct sovereign debt is limited to Poland ($288 $2.5 Other France million outstanding) and Mexico ($50 million) $5.8
Slide 40: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of September 30, 2019 U.S. and Non-U.S. ($ in billions) • Assured Guaranty’s total structured finance Pooled U.S. exposure of $240.9 billion at December 31, Corporate RMBS $1.5 15% $3.7 2007 has declined by $230.9 billion to $10.0 37% billi
Slide 41: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $3.7 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 September 30, 2019 – Total U.S. RMBS has declined from $29.2 billion at December ($ in billions) 31, 2009 to $3.7 billion at Septe
Slide 42: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) September 30, 2019 December 31, 2018 • As of September 30, 2019, BIG Category 1 approximately $2.6 billion (31%) of U.S. public finance $1,60
Slide 43: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $18.3 billion • BIG credits account for only 3.7% of Assured Guaranty’s total exposure, the lowest level in nearly 10 years. • The largest components of our BIG exposure are Puerto Rico at 50% and U.S. RMBS at 20% Changes in
Slide 44: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of September 30, 2019 Net Par Internal Type1 Name or Description Outstanding Rating2 PF Puerto Rico General Obligation, Appropriations and Guarantees of the Commonwealth $1,409 CCC PF Puerto Rico Highways a
Slide 45: Appendix
ASSURED GUARANTY F | Appendix 5S.
Slide 46: 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 47: 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 48: 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 49: 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 September 30, Year Ended December 31, (dollars in millions) 2019 2018 2018 2017 2016 2015 2014 Total GWP $69 $50 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adjustments 1
Slide 50: Reconciliation of Net Income (Loss) to Non-GAAP Operating Income
Appendix Reconciliation of Net Income (Loss) to Non-GAAP Operating Income1 Three Months Ended Nine Months Ended Non-GAAP Operating Income1 Reconciliation September 30, September 30, (dollars in millions, except per share amounts) 2019 2018 2019 2018 Per Diluted Per Diluted Per Diluted Per Diluted To
Slide 51: 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 Income1 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
Slide 52: 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 Income1 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
Slide 53: 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 Value1 Reconciliation As of (dollars in millions, except per share amounts) September 30, 2019 June 30, 2019 December 31, 2018 September 30, 2018 June 30, 2018 December 31, 2017 Total Per Share To
Slide 54: 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 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 Tot
Slide 55: 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 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 Shar
Slide 56: 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 Q3 2019 2019 2020 2021 2022 2023 Insured net par outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,5
Slide 57: Reconciliation of GAAP ROE to Non-GAAP Operating ROE
Appendix Reconciliation of GAAP ROE1 to Non-GAAP Operating ROE1,2 ROE Reconciliation (dollars in millions) Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 Net income (loss) $69 $161 $265 $433 Non-GAAP operating income2 77 161 304 390 Gain (loss) related to FG VIE
Slide 58: 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, 2019 5