Assured Guaranty Ltd. · NYSE:AGO
Assured Guaranty — Q2 2020 Earnings Presentation
66 slides from Assured Guaranty's earnings presentation, August 2020
Slide 1: Equity Investor Presentation June 30, 2020
EMBRACE POSSIBILITIES, INVEST IN CERTAINTIES Equity Investor Presentation June 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 • Second 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 – Investm
Slide 5: Second Quarter 2020 Accomplishments
Second Quarter 2020 Accomplishments • Earned $119 million of adjusted operating income1, or $1.36 per share • Increased shareholders' equity per share, adjusted operating shareholders' equity1 per share and adjusted book value1 per share, reaching new record highs of $76.66, $71.34 and $104.63, resp
Slide 6: First Half 2020 Accomplishments
First Half 2020 Accomplishments • Earned $152 million of adjusted operating income1, or $1.68 per share • Generated $147 million of new insurance business production PVP1, the second highest level of new insurance production for the first half of the year since 2010, excluding portfolio reinsurance
Slide 7: COVID-19 Market Disruption
COVID-19 Market Disruption Strength of Financial Guaranty Business Model • The Company is required to pay only any shortfall of principal and interest due on the scheduled payment dates ‒ Insurance regulations forbid acceleration of our obligations without consent ‒ Many of the obligations the Compa
Slide 8: Assured Guaranty Overview
Assured Guaranty Overview
Slide 9: Assured Guaranty Overview
Assured Guaranty Overview Assured Guaranty Ltd. • We are the leading financial guaranty ($ in billions) Jun 30, 2020 Sept 30, 2009 franchise, with over three decades of experience in the municipal and structured Insured net par outstanding $232.0 $646.6 finance markets U.S. public finance $173.1 $42
Slide 10: 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) Assured Guaranty Finance Financial Guaran
Slide 11: Assured Guaranty Overview
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 12: 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 6, 2020,
Slide 13: 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 14: 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 $12 million2 (Head Office – Bermuda; Tax Residence – U.K.) • Annual net expenses of $33 million Assured Guaranty Re Ltd. • Annual dividend dist
Slide 15: Underlying Value
Underlying Value
Slide 16: 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 June 30, 2020 62% rated AA or higher A Nearly 100% of BIG • Approximately $1.1 billion invested in liquid, BBB is
Slide 17: Deleveraging
Underlying Value Deleveraging • Our insured net par outstanding to adjusted operating shareholders’ equity1 has improved from 157:1 in 4Q-09 to 39:1 as of 2Q-20 – Assuming the municipal market normalizes over the course of 2020, we still expect that beginning in 2020, our rate of new business writte
Slide 18: Net Investment Income and Operating Expenses
Underlying Value Insurance Segment and Corporate Division Net Investment Income1 and Operating Expenses • Net investment income1 is expected to cover operating expenses of the Insurance segment and Corporate division Net Investment Income1 ($ in millions) 1 Net investment income $423 $417 $404 $393
Slide 19: Historical Growth: Adjusted Book Value per Share
Underlying Value Historical Growth Adjusted Book Value1 per Share $104.63 $96.99 $86.18 $31.50 $77.86 $28.26 $23.32 $1.79 $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 $71.34 $35.66 $7.38 $9.05 $18.46 $15.62 $0.
Slide 20: Creating Value
Creating Value
Slide 21: 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 in the primary and the secondary markets for U.S. public finance – In Q2 2020, we insured 318 primary market transactions totaling $5.8 billion, and
Slide 22: U.S. Structured Finance Business Activity
Creating Value Insurance U.S. Structured Finance Business Activity • During 2Q-20, we insured an insurance securitization and two whole business securitizations U.S. Structured PVP1 (excluding SGI reinsurance portfolio)2 ($ in millions) • During 1Q-20, we insured a portion of a whole business securi
Slide 23: Non-U.S. Business Activity
Creating Value Insurance Non-U.S. Business Activity • During 2Q-20, new business included a guaranty of a solar bond transaction in Spain and a Non-U.S. PVP1 secondary market guaranty to a European (excluding SGI reinsurance portfolio)2 ($ in millions) financial institution for a public sector credi
Slide 24: Underwriting Principles and Pricing Discipline
Creating Value Insurance Underwriting Principles and Pricing Discipline Gross Par Written Quarter Ended June 30, Half-Year Ended June 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. publi
Slide 25: Assured Investment Management Platform
Creating Value Assured Investment Management Platform • On October 1, 2019, Assured Guaranty completed the acquisition of all of the outstanding equity interests in BlueMountain and its associated entities for a purchase price of $157 million - Assured Guaranty contributed $60 million of cash to Blu
Slide 26: Financial Results
Financial Results June 30, 2020
Slide 27: Second Quarter 2020 Results: Select Financial Items
Second Quarter 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Quarter Ended June 30, 2Q-19 2020 2019 Net income (loss) attributable to AGL $183 $142 29% Net income (loss) attributable to AGL per diluted share $2.10 $1.39 51
Slide 28: First Half 2020 Results: Select Financial Items
First Half 2020 Results Select Financial Items Select GAAP Results % Change vs. ($ in millions, except per share data and percentages) Half Year Ended June 30, 1H-19 2020 2019 Net income (loss) attributable to AGL $128 $196 (35)% Net income (loss) attributable to AGL per diluted share $1.42 $1.90 (2
Slide 29: Second Quarter 2020 Select Segment Results
Second Quarter 2020 Results Select Segment Results Select Segment Results ($ in millions) Quarter Ended June 30, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) 154 $(9) $(26) $- $119 Net earned premiums and credit derivative revenues $125 $- $- $(1) $124 Net i
Slide 30: First Half 2020 Select Segment Results
First Half 2020 Results Select Segment Results Select Segment Results ($ in millions) First Half Ended June 30, 2020 Insurance Asset Management Corporate Other Total Adjusted operating income (loss) $239 $(18) $(65) $(4) $152 Net earned premiums and credit derivative revenues $232 $- $- $(2) $230 Ne
Slide 31: Insurance Loss Measures
Insurance Loss Measures Economic loss development (all contracts): • Represents the estimated change in expected losses due to changes in transaction performance, discount rates, loss mitigation and other factors. Economic loss development excludes the effects of deferred premium revenue. The effect
Slide 32: Consolidated Insurance Expected Loss and LAE to Be Paid (Three Months)
Consolidated Insurance Expected Loss and LAE to Be Paid Three Months Ended June 30, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Three Months Ended June 30, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Benefit) (Pa
Slide 33: Consolidated Insurance Expected Loss and LAE to Be Paid (Six Months)
Consolidated Insurance Expected Loss and LAE to Be Paid Six Months Ended June 30, 2020 ($ in millions) Rollforward of Net Expected Loss and LAE to be Paid1 for the Six Months Ended June 30, 2020 Net Expected Loss to Economic Loss Net Expected Loss to be Paid (Recovered) Development (Benefit) (Paid)
Slide 34: Insurance Portfolio Overview
Insurance Portfolio Overview June 30, 2020
Slide 35: 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 June 30, 2020 ($ in millions) AGM AGC MAC AG Re7 Eliminations2 Consolidated Claims-paying resources Policyholders' surplus $2,667 $1,701 $264 $834 $(463) $5,003 Cont
Slide 36: Net Par Outstanding By Sector
Net Par Outstanding By Sector • Assured Guaranty’s insured portfolio is Consolidated Net Par Outstanding largely concentrated in U.S. public finance As of June 30, 2020 ($ in billions) Non-U.S. Structured – 75% U.S. public finance Finance A Average Rating – 21% Non-U.S. public finance $0.7 – 4% U.S.
Slide 37: 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 $232 billion insurance portfolio consists of $222 billion of public finance and $10 billion of structured fina
Slide 38: U.S. Public Finance
U.S. Public Finance Net Par Outstanding • U.S. public finance net par outstanding is $173.1 billion and makes up 75% of our total U.S. Public Finance insured portfolio as of June 30, 2020 As of June 30, 2020 ($ in billions) • U.S. public finance portfolio generally Higher Other Public performed well
Slide 39: Puerto Rico Exposure
Public Finance Puerto Rico Exposure Par Exposure to the Commonwealth and its Agencies1,2 As of June 30, 2020 Net Par Gross Par ($ in millions) Outstanding Outstanding Commonwealth Commonwealth of Puerto Rico - General Obligation Bonds 3 $1,253 $1,294 Constitutionally Puerto Rico Public Buildings Aut
Slide 40: Puerto Rico Exposure: Scheduled Net Par Amortization
Public Finance Puerto Rico Exposure Scheduled Net Par Amortization of Exposure to the Commonwealth and its Agencies As of June 30, 2020 3Q 4Q 2030- 2035- 2040- 2045- ($ in millions) 2020 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2039 2044 2047 Total Commonwealth – GO $141 $- $15 $37 $14
Slide 41: Puerto Rico Exposure: Scheduled Net Debt Service Amortization
Public Finance Puerto Rico Exposure Scheduled Net Debt Service Amortization of Exposure to the Commonwealth and its Agencies As of June 30, 2020 3Q 4Q 2030- 2035- 2040- 2045- ($ in millions) 2020 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2039 2044 2047 Total Commonwealth – GO $173 $- $7
Slide 42: Consolidated Non-U.S. Exposure
Consolidated Non-U.S. Exposure Non-U.S. Public and Structured Finance Non-U.S. Exposure As of June 30, 2020 ($ in billions) • 99% of non-U.S. exposure is Public Finance – Direct sovereign debt is limited to Poland ($288 Canada $2.4 France million) and Mexico ($50 million) Other $3.1 Australia $6.7 5
Slide 43: Structured Finance Exposures
Structured Finance Exposures Net Par Outstanding By Type As of June 30, 2020 Life Insurance Financial Products 1 ($ in billions) Transactions $2.0 • Assured Guaranty’s total structured finance (GICs) exposure of $9.5 billion through June 30, 2020 $0.8 21% U.S. and Non- reflects a $231.4 billion redu
Slide 44: Consolidated U.S. RMBS
Consolidated U.S. RMBS • Our $3.3 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 June 30, 2020 – Assured Guaranty’s U.S. RMBS exposure of $3.3 billion ($ in billions) through June 30, 2020 reflects a $25.9 billio
Slide 45: Below Investment Grade Exposures
Below Investment Grade Exposures Net Par Outstanding by BIG Category1 Financial Guaranty Insurance and Credit Derivatives Surveillance Categories ($ millions) June 30, 2020 December 31, 2019 • As of June 30, 2020, approximately BIG Category 1 $2.6 billion (31%) of the aggregate U.S. public finance $
Slide 46: BIG Exposure Decline
BIG Exposure Decline • Since 4Q-11, BIG net par outstanding has declined by $18.4 billion • The largest components of our BIG exposure are Puerto Rico at 52% and U.S. RMBS at 19% • The reassumption of American Overseas in Q2 2020 increased BIG exposure by $144 million BIG Net Par Outstanding BIG Net
Slide 47: BIG Exposures > $250 Million
BIG Exposures > $250 Million (dollars in millions) BIG Exposures Greater Than $250 Million as of June 30, 2020 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 and Tr
Slide 48: Asset Management Overview
Asset Management Overview June 30, 2020
Slide 49: Asset Management
Asset Management • The Assured Investment Management platform currently has $17.0 billion in assets under management, adding $304 million of inflows in Q2 Assets Under Management 2020 As of June 30, 2020 ($ in billions) – CLOs had significant net inflows of $528 million – Opportunity funds had small
Slide 50: Assets Under Management
Asset Management Assets Under Management Select GAAP Results ($ in Quarter-to-Date (March 31, 2020 to June 30, 2020) Year-to-Date (December 31, 2019 to June 30, 2020) millions) Opportunity Liquid Wind-Down Opportunity Liquid Wind-Down CLOs Funds Strategies Funds Total CLOs Funds Strategies Funds Tot
Slide 51: Appendix
ASSURED GUARANTY
Slide 52: 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 53: 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 54: 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 55: 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 56: Reconciliation of Gross Written Premiums to PVP
Appendix Reconciliation of Gross Written Premiums (GWP) to PVP Three Months Ended Reconciliation of GWP to PVP June 30, Year Ended December 31, (dollars in millions) 2020 2019 2019 2018 2017 2016 2015 2014 Total GWP $149 $51 $677 $612 $307 $154 $181 $104 Less: Installment GWP and other GAAP adjustme
Slide 57: Reconciliation of Net Income to Adjusted Operating Income
Appendix Reconciliation of Net Income (Loss) Attributable to AGL to Adjusted Operating Income1 Three Months Ended Six Months Ended Adjusted Operating Income Reconciliation June 30, June 30, (dollars in millions, except per share amounts) 2020 2019 2020 2019 Per Diluted Per Diluted Per Diluted Per Di
Slide 58: Reconciliation of Net Income 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 59: Reconciliation of Net Income 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 60: 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) June 30, 2020 March 31, 2020 December 31, 2019 June 30, 2019 March 31, 2019 December 31, 2018 Total Per Share Total Per Share Total Per Sh
Slide 61: 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 62: 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 63: 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 Q2 2020 Insured net par outstanding $640,194 $616,686 $556,830 $518,772 $459,107 $403,729 $358,571 $296,318 $
Slide 64: 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 Six Months Ended June 30, June 30, 2020 2019 2020 2019 Net income (loss) attributable to AGL $183 142 $128 196 Adjusted operating income2 119 141 152 227 Average shareholders
Slide 65: 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 o
Slide 66: 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, 2020 65