Exhibit 99.2
Assured Guaranty Ltd.
Financial Supplement
Second Quarter 2006
June 30, 2006
This supplement should be read in conjunction with documents filed by Assured Guaranty Ltd. (the “Company”) with the Securities and Exchange Commission, including our 10-Q’s dated March 31, 2005, June 30, 2005, September 30, 2005 and March 31, 2006 and our 10-K for the year ended December 31, 2005.
Cautionary Statement Regarding Forward-Looking Statements:
Any forward-looking statements made in this supplement reflect the Company’s current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. For example, the Company’s forward-looking statements, including its calculations of adjusted book value, PVP and net present value of estimated future installment premiums in force, and statements regarding ratings improvement and the growth of the direct business could be affected by many events. These events include a significant reduction in the amount of reinsurance ceded by one or more of our principal ceding companies, rating agency action such as a ratings downgrade, difficulties with the execution of the Company’s business strategy, contract cancellations, developments in the world’s financial and capital markets, more severe or frequent losses associated with products affecting the adequacy of the Company’s loss reserve, changes in regulation or tax laws, governmental actions, natural catastrophes, the Company’s dependence on customers, decreased demand or increased competition, loss of key personnel, technological developments, the effects of mergers, acquisitions and divestitures, changes in accounting policies or practices, changes in general economic conditions, other risks and uncertainties that have not been identified at this time, management’s response to these factors, and other risk factors identified in the Company’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Assured Guaranty Ltd.
Selected Financial Highlights
(dollars and shares in millions except per share amounts)
| | Quarter Ended | | % Change | | Six Months Ended | | % Change | |
| | June 30, | | versus | | June 30, | | versus | |
| | 2006 | | 2005 | | 2Q-05 | | 2006 | | 2005 | | YTD 2005 | |
Gross written premiums (GWP) analysis: | | | | | | | | | | | | | |
Present value of financial guaranty & mortgage guaranty
GWP (PVP)(a) | | $ | 148.4 | | $ | 57.9 | | 156 | % | $ | 210.2 | | $ | 140.5 | | 50 | % |
Less: Installment premium PVP | | 70.8 | | 38.3 | | 85 | % | 115.0 | | 86.1 | | 34 | % |
Upfront financial guaranty & mortgage guaranty GWP | | 77.6 | | 19.6 | | 296 | % | 95.2 | | 54.4 | | 75 | % |
Less: Upfront premium due to novations | | — | | 18.4 | | NMF | | — | | 18.4 | | NMF | |
Plus: Installment GWP | | 33.8 | | 29.8 | | 13 | % | 67.8 | | 72.2 | | (6 | )% |
Financial guaranty & mortgage guaranty GWP | | 111.4 | | 31.0 | | 259 | % | 163.0 | | 108.2 | | 51 | % |
Plus: Other segment GWP | | 0.1 | | 9.5 | | (99 | )% | 3.9 | | 10.4 | | (63 | )% |
Total GWP | | $ | 111.5 | | $ | 40.5 | | 175 | % | $ | 166.9 | | $ | 118.6 | | 41 | % |
| | | | | | | | | | | | | |
Net income | | $ | 44.5 | | $ | 66.8 | | (33 | )% | $ | 79.4 | | $ | 111.1 | | (29 | )% |
Less: After-tax realized (losses) gains on investments | | (0.8 | ) | 1.2 | | NMF | | (1.4 | ) | 2.7 | | NMF | |
Less: After-tax unrealized gains (losses) on derivatives | | 4.3 | | (9.7 | ) | NMF | | 4.2 | | (8.1 | ) | NMF | |
Operating income(b) | | $ | 41.0 | | $ | 75.2 | | (45 | )% | $ | 76.7 | | $ | 116.6 | | (34 | )% |
| | | | | | | | | | | | | |
Book value | | $ | 1,682.8 | | $ | 1,619.5 | | 4 | % | | | | | | |
Plus: Net unearned premium reserve less DAC, after-tax(1) | | 330.0 | | 279.8 | | 18 | % | | | | | | |
Plus: Net present value of estimate future installment premiums in-force, after-tax(d) | | 365.9 | | 300.6 | | 22 | % | | | | | | |
Adjusted book value(c) | | $ | 2,378.7 | | $ | 2,199.9 | | 8 | % | | | | | | |
| | | | | | | | | | | | | |
ROE, excluding AOCI | | 10.7 | % | 17.7 | % | | | 9.6 | % | 14.9 | % | | |
Less: After-tax realized (losses) gains on investments | | (0.2 | )% | 0.3 | % | | | (0.2 | )% | 0.4 | % | | |
Less: After-tax unrealized gains (losses) on derivatives | | 1.0 | % | (2.6 | )% | | | 0.5 | % | (1.1 | )% | | |
Operating ROE, excluding AOCI(b) | | 9.9 | % | 19.9 | % | | | 9.3 | % | 15.6 | % | | |
| | | | | | | | | | | | | |
Per diluted share: | | | | | | | | | | | | | |
Net income | | $ | 0.60 | | $ | 0.90 | | (33 | )% | $ | 1.06 | | $ | 1.49 | | (29 | )% |
Less: After-tax realized (losses) gains on investments | | (0.01 | ) | 0.02 | | NMF | | (0.02 | ) | 0.04 | | NMF | |
Less: After-tax unrealized gains (losses) on derivatives | | 0.06 | | (0.13 | ) | NMF | | 0.06 | | (0.11 | ) | NMF | |
Operating income(b) | | $ | 0.55 | | $ | 1.02 | | (46 | )% | $ | 1.03 | | $ | 1.56 | | (34 | )% |
| | | | | | | | | | | | | |
Book value | | $ | 22.98 | | $ | 21.63 | | 6 | % | | | | | | |
Plus: Net unearned premium reserve less DAC, after-tax(1) | | 4.51 | | 3.74 | | 21 | % | | | | | | |
Plus: Net present value of estimate future installment premiums in-force, after-tax(d) | | 5.00 | | 4.01 | | 25 | % | | | | | | |
Adjusted book value(c) | | $ | 32.48 | | $ | 29.38 | | 11 | % | | | | | | |
| | | | | | | | | | | | | |
Additional information: | | | | | | | | | | | | | |
Shares outstanding at the end of period(2) | | 73.2 | | 74.9 | | (2 | )% | | | | | | |
Weighted average basic shares outstanding | | 73.6 | | 73.8 | | (0.3 | )% | 73.7 | | 74.1 | | (1 | )% |
Weighted average diluted shares outstanding | | 74.4 | | 74.1 | | 0.4 | % | 74.6 | | 74.5 | | 0.1 | % |
| | | | | | | | | | | | | |
Consolidated net debt service outstanding | | $ | 160,388 | | $ | 137,104 | | 17 | % | | | | | | |
Consolidated net par outstanding | | 115,611 | | 94,867 | | 22 | % | | | | | | |
Consolidated claims-paying resources | | 3,206 | | 3,028 | | 6 | % | | | | | | |
Gross par written | | 15,283 | | 3,515 | | 335 | % | 23,412 | | 8,953 | | 161 | % |
(1) Unearned premium reserve (UPR) less pre-paid reinsurance premiums and deferred acquisition costs (DAC), all after-tax
(2) 6/30/06 shares outstanding excludes 1.2 million of nonvested restricted stock, which is considered not issued under FAS 123R. 12/31/05 shares outstanding includes 1.0 million of nonvested restricted stock.
Note: | Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), adjusted book value (c), and net present value of estimated future installment premiums in force (d)]. |
1
Assured Guaranty Ltd.
Consolidated GAAP Income Statements
(dollars and shares in millions, except per share amounts)
| | Quarter Ended | | % Change | | Six Months Ended | | % Change | |
| | June 30, | | versus | | June 30, | | versus | |
| | 2006 | | 2005 | | 2Q-05 | | 2006 | | 2005 | | YTD 2005 | |
| | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | |
Gross written premiums | | $ | 111.5 | | $ | 40.5 | | 175 | % | $ | 166.9 | | $ | 118.6 | | 41 | % |
| | | | | | | | | | | | | |
Net written premiums | | 110.3 | | 30.2 | | 265 | % | 161.1 | | 106.6 | | 51 | % |
| | | | | | | | | | | | | |
Net earned premiums | | 48.2 | | 48.3 | | (0.2 | )% | 96.2 | | 96.4 | | (0.2 | )% |
Net investment income | | 27.3 | | 23.7 | | 15 | % | 53.5 | | 46.8 | | 14 | % |
Other income | | — | | (0.2 | ) | NMF | | — | | 0.1 | | NMF | |
Total revenues | | 75.5 | | 71.8 | | 5 | % | 149.7 | | 143.3 | | 4 | % |
| | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | |
Loss and loss adjustment expenses | | (6.5 | ) | (59.1 | ) | (89 | )% | (6.9 | ) | (68.5 | ) | (90 | )% |
Profit commission expense | | 1.7 | | 3.3 | | (48 | )% | 3.0 | | 4.3 | | (30 | )% |
Acquisition costs | | 11.3 | | 11.7 | | (3 | )% | 22.1 | | 21.9 | | 1 | % |
Other operating expenses | | 15.6 | | 14.5 | | 8 | % | 32.8 | | 29.0 | | 13 | % |
Other expenses | | 4.1 | | 5.9 | | (31 | )% | 8.0 | | 9.2 | | (13 | )% |
Total expenses | | 26.2 | | (23.7 | ) | NMF | | 59.0 | | (4.1 | ) | NMF | |
| | | | | | | | | | | | | |
Income before provision for income taxes | | 49.3 | | 95.5 | | (48 | )% | 90.7 | | 147.4 | | (38 | )% |
| | | | | | | | | | | | | |
Total provision for income taxes | | 8.3 | | 20.3 | | (59 | )% | 14.0 | | 30.8 | | (55 | )% |
| | | | | | | | | | | | | |
Operating income(b) | | 41.0 | | 75.2 | | (45 | )% | 76.7 | | 116.6 | | (34 | )% |
| | | | | | | | | | | | | |
After-tax realized (losses) gains on investments | | (0.8 | ) | 1.2 | | NMF | | (1.4 | ) | 2.7 | | NMF | |
After-tax unrealized gains (losses) on derivatives | | 4.3 | | (9.7 | ) | NMF | | 4.2 | | (8.1 | ) | NMF | |
| | | | | | | | | | | | | |
Net income | | $ | 44.5 | | $ | 66.8 | | (33 | )% | $ | 79.4 | | $ | 111.1 | | (29 | )% |
| | | | | | | | | | | | | |
Per diluted share | | | | | | | | | | | | | |
Operating income(b) | | $ | 0.55 | | $ | 1.02 | | (46 | )% | $ | 1.03 | | $ | 1.56 | | (34 | )% |
After-tax realized (losses) gains on investments | | (0.01 | ) | 0.02 | | NMF | | (0.02 | ) | 0.04 | | NMF | |
After-tax unrealized gains (losses) on derivatives | | 0.06 | | (0.13 | ) | NMF | | 0.06 | | (0.11 | ) | NMF | |
Net income | | $ | 0.60 | | $ | 0.90 | | (33 | )% | $ | 1.06 | | $ | 1.49 | | (29 | )% |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | |
Basic shares outstanding | | 73.6 | | 73.8 | | (0.3 | )% | 73.7 | | 74.1 | | (1 | )% |
Plus: effect of options | | 0.5 | | 0.2 | | 150 | % | 0.5 | | 0.1 | | 400 | % |
Plus: effect of restricted stock | | 0.3 | | 0.1 | | 200 | % | 0.4 | | 0.2 | | 100 | % |
Diluted shares outstanding | | 74.4 | | 74.1 | | 0.4 | % | 74.6 | | 74.5 | | 0.1 | % |
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), and adjusted book value (c)].
Some amounts may not foot due to rounding.
2
Assured Guaranty Ltd.
Consolidated GAAP Balance Sheets
(dollars in millions)
| | As of : | |
| | June 30, | | December 31, | |
| | 2006 | | 2005 | |
| | | | | |
Assets | | | | | |
Fixed maturity securities, at fair value | | $ | 2,069.2 | | $ | 2,134.0 | |
Short-term investments, at cost which approximates fair value | | 170.7 | | 115.8 | |
Total investments | | 2,239.9 | | 2,249.8 | |
| | | | | |
Cash and cash equivalents | | 29.2 | | 6.2 | |
Accrued investment income | | 22.7 | | 22.7 | |
Deferred acquisition costs | | 205.3 | | 193.4 | |
Prepaid reinsurance premiums | | 12.4 | | 12.5 | |
Reinsurance recoverable on ceded losses | | 11.3 | | 12.4 | |
Premiums receivable | | 42.2 | | 33.0 | |
Goodwill | | 85.4 | | 85.4 | |
Unrealized gains on derivative financial instruments | | 52.3 | | 53.0 | |
Current income taxes receivable | | 7.6 | | 3.0 | |
Receivables for securities sold | | 9.7 | | 1.0 | |
Other assets | | 17.4 | | 16.7 | |
Total assets | | $ | 2,735.4 | | $ | 2,689.1 | |
| | | | | |
Liabilities and shareholders’ equity | | | | | |
Liabilities | | | | | |
Unearned premium reserves | | $ | 601.9 | | $ | 537.1 | |
Reserves for losses and loss adjustment expenses | | 114.6 | | 121.2 | |
Profit commissions payable | | 29.6 | | 53.0 | |
Reinsurance balances payable | | 1.4 | | 3.7 | |
Deferred income taxes | | 24.3 | | 26.6 | |
Funds held by Company under reinsurance contracts | | 20.3 | | 19.2 | |
Unrealized losses on derivative financial instruments | | 6.2 | | 12.7 | |
Long-term debt | | 197.4 | | 197.3 | |
Liability for tax basis step-up adjustment | | 19.8 | | 20.1 | |
Payables for securities purchased | | 12.1 | | 0.8 | |
Other liabilities | | 24.9 | | 35.8 | |
Total liabilities | | 1,052.6 | | 1,027.6 | |
| | | | | |
Shareholders’ equity | | | | | |
Common stock | | 0.7 | | 0.7 | |
Additional paid-in capital | | 855.3 | | 882.0 | |
Unearned stock grant compensation | | — | | (14.8 | ) |
Retained earnings | | 821.8 | | 747.7 | |
Accumulated other comprehensive income | | 5.0 | | 45.8 | |
Total shareholders’ equity | | 1,682.8 | | 1,661.5 | |
| | | | | |
Total liabilities and shareholders’ equity | | $ | 2,735.4 | | $ | 2,689.1 | |
3
Assured Guaranty Ltd.
Segment Consolidation (1 of 2)
(dollars in millions)
| | Quarter Ended June 30, 2006 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance(1) | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
Present value of financial guaranty gross written premiums
(PVP):(a) | | | | | | | | | | | | | |
U.S. public finance | | $ | 6.0 | | $ | 29.7 | | $ | — | | $ | 35.7 | | | | $ | 35.7 | |
U.S. structured finance | | 41.0 | | 2.0 | | — | | 43.0 | | | | 43.0 | |
International | | 51.8 | | 17.9 | | — | | 69.7 | | | | 69.7 | |
Total PVP | | $ | 98.8 | | $ | 49.6 | | $ | — | | $ | 148.4 | | | | $ | 148.4 | |
| | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | |
Gross written premiums | | $ | 68.4 | | $ | 41.7 | | $ | 1.2 | | $ | 111.4 | | $ | 0.1 | | $ | 111.5 | |
Net written premiums | | 67.8 | | 41.3 | | 1.2 | | 110.3 | | — | | 110.3 | |
| | | | | | | | | | | | | |
Net earned premiums | | 21.2 | | 23.1 | | 3.7 | | 48.2 | | — | | 48.2 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expenses | | (2.5 | ) | 5.7 | | 0.4 | | 3.6 | | (10.1 | ) | (6.5 | ) |
Profit commission expense | | — | | 1.0 | | 0.7 | | 1.7 | | — | | 1.7 | |
Acquisition costs | | 2.3 | | 8.5 | | 0.3 | | 11.3 | | — | | 11.3 | |
Operating expenses | | 12.0 | | 3.4 | | 0.3 | | 15.6 | | — | | 15.6 | |
Total underwriting expenses | | $ | 11.8 | | $ | 18.5 | | $ | 1.7 | | $ | 32.2 | | $ | (10.1 | ) | $ | 22.1 | |
| | | | | | | | | | | | | |
Underwriting gain | | $ | 9.4 | | $ | 4.6 | | $ | 2.0 | | $ | 16.0 | | $ | 10.1 | | $ | 26.1 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | (11.7 | )% | 24.6 | % | 9.4 | % | 7.4 | % | | | (13.5 | )% |
Expense ratio | | 67.4 | % | 55.4 | % | 36.4 | % | 59.3 | % | | | 59.3 | % |
Combined ratio | | 55.7 | % | 80.0 | % | 45.8 | % | 66.7 | % | | | 45.8 | % |
| | Quarter Ended June 30, 2005 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance(1) | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
PVP: | | | | | | | | | | | | | |
U.S. public finance | | $ | 5.1 | | $ | 15.4 | | $ | — | | $ | 20.5 | | | | $ | 20.5 | |
U.S. structured finance | | 16.1 | | 4.9 | | — | | 21.0 | | | | 21.0 | |
International | | 1.5 | | 15.0 | | — | | 16.4 | | | | 16.4 | |
Total PVP | | $ | 22.7 | | $ | 35.2 | | $ | — | | $ | 57.9 | | | | $ | 57.9 | |
| | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | |
Gross written premiums | | $ | 20.9 | | $ | 8.2 | | $ | 1.9 | | $ | 31.0 | | $ | 9.5 | | $ | 40.5 | |
Net written premiums | | 20.4 | | 8.0 | | 1.9 | | 30.2 | | — | | 30.2 | |
| | | | | | | | | | | | | |
Net earned premiums | | 16.0 | | 27.2 | | 5.1 | | 48.3 | | — | | 48.3 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expenses | | 5.0 | | (64.1 | ) | — | | (59.1 | ) | — | | (59.1 | ) |
Profit commission expense | | — | | 2.3 | | 1.0 | | 3.3 | | — | | 3.3 | |
Acquisition costs | | 1.6 | | 9.5 | | 0.6 | | 11.7 | | — | | 11.7 | |
Operating expenses | | 9.5 | | 4.7 | | 0.3 | | 14.5 | | — | | 14.5 | |
Total underwriting expenses | | $ | 16.1 | | $ | (47.6 | ) | $ | 1.9 | | $ | (29.6 | ) | $ | — | | $ | (29.6 | ) |
| | | | | | | | | | | | | |
Underwriting (loss) gain | | $ | (0.1 | ) | $ | 74.8 | | $ | 3.2 | | $ | 77.9 | | $ | — | | $ | 77.9 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | 31.3 | % | (235.7 | )% | — | | (122.4 | )% | | | (122.4 | )% |
Expense ratio | | 69.1 | % | 60.7 | % | 37.5 | % | 61.0 | % | | | 61.0 | % |
Combined ratio | | 100.4 | % | (175.0 | )% | 37.5 | % | (61.4 | )% | | | (61.4 | )% |
(1) Due to the timing of receipts of reports prepared by our ceding companies, present value of treaty financial guaranty gross written premiums (PVP) for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a one-quarter lag. PVP of facultative financial guaranty gross written premiums for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a current quarter basis.
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), and adjusted book value (c)].
4
Assured Guaranty Ltd.
Segment Consolidation (2 of 2)
(dollars in millions)
| | Six Months Ended June 30, 2006 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance(1) | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
Present value of financial guaranty gross written premiums
(PVP):(a) | | | | | | | | | | | | | |
U.S. public finance | | $ | 14.4 | | $ | 38.2 | | $ | — | | $ | 52.7 | | | | $ | 52.7 | |
U.S. structured finance | | 68.6 | | 5.3 | | — | | 73.9 | | | | 73.9 | |
International | | 57.5 | | 26.2 | | — | | 83.6 | | | | 83.6 | |
Total PVP | | $ | 140.5 | | $ | 69.7 | | $ | — | | $ | 210.2 | | | | $ | 210.2 | |
| | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | |
Gross written premiums | | $ | 98.6 | | $ | 60.5 | | $ | 3.8 | | $ | 163.0 | | $ | 3.9 | | $ | 166.9 | |
Net written premiums | | 97.5 | | 59.8 | | 3.8 | | 161.1 | | — | | 161.1 | |
| | | | | | | | | | | | | |
Net earned premiums | | 41.9 | | 46.4 | | 7.9 | | 96.2 | | — | | 96.2 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expenses | | (4.3 | ) | 8.5 | | 0.2 | | 4.4 | | (11.3 | ) | (6.9 | ) |
Profit commission expense | | — | | 1.4 | | 1.6 | | 3.0 | | — | | 3.0 | |
Acquisition costs | | 4.2 | | 17.2 | | 0.6 | | 22.1 | | — | | 22.1 | |
Operating expenses | | 25.4 | | 6.8 | | 0.6 | | 32.8 | | — | | 32.8 | |
Total underwriting expenses | | $ | 25.3 | | $ | 33.8 | | $ | 3.1 | | $ | 62.3 | | $ | (11.3 | ) | $ | 51.0 | |
| | | | | | | | | | | | | |
Underwriting gain | | $ | 16.6 | | $ | 12.6 | | $ | 4.8 | | $ | 33.9 | | $ | 11.3 | | $ | 45.2 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | (10.2 | )% | 18.3 | % | 2.5 | % | 4.6 | % | | | (7.2 | )% |
Expense ratio | | 70.6 | % | 54.5 | % | 36.2 | % | 60.2 | % | | | 60.2 | % |
Combined ratio | | 60.4 | % | 72.8 | % | 38.7 | % | 64.8 | % | | | 53.0 | % |
| | Six Months Ended June 30, 2005 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance(1) | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
PVP: | | | | | | | | | | | | | |
U.S. public finance | | $ | 6.7 | | $ | 34.4 | | $ | — | | $ | 41.0 | | | | $ | 41.0 | |
U.S. structured finance | | 47.1 | | 7.9 | | — | | 55.0 | | | | 55.0 | |
International | | 6.4 | | 25.0 | | 13.1 | | 44.5 | | | | 44.5 | |
Total PVP | | $ | 60.1 | | $ | 67.3 | | $ | 13.1 | | $ | 140.5 | | | | $ | 140.5 | |
| | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | |
Gross written premiums | | $ | 44.7 | | $ | 42.2 | | $ | 21.3 | | $ | 108.2 | | $ | 10.4 | | $ | 118.6 | |
Net written premiums | | 43.5 | | 42.0 | | 21.3 | | 106.6 | | — | | 106.6 | |
| | | | | | | | | | | | | |
Net earned premiums | | 36.4 | | 50.2 | | 9.7 | | 96.4 | | — | | 96.4 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expenses | | 3.5 | | (71.2 | ) | 0.2 | | (67.5 | ) | (1.1 | ) | (68.5 | ) |
Profit commission expense | | — | | 2.3 | | 2.0 | | 4.3 | | — | | 4.3 | |
Acquisition costs | | 3.1 | | 17.6 | | 1.1 | | 21.9 | | — | | 21.9 | |
Operating expenses | | 20.9 | | 7.5 | | 0.6 | | 29.0 | | — | | 29.0 | |
Total underwriting expenses | | $ | 27.5 | | $ | (43.8 | ) | $ | 3.9 | | $ | (12.4 | ) | $ | (1.1 | ) | $ | (13.4 | ) |
| | | | | | | | | | | | | |
Underwriting gain | | $ | 8.9 | | $ | 94.0 | | $ | 5.8 | | $ | 108.8 | | $ | 1.1 | | $ | 109.9 | |
| | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | 9.7 | % | (141.8 | )% | 2.1 | % | (70.0 | )% | | | (71.1 | )% |
Expense ratio | | 65.8 | % | 54.6 | % | 38.1 | % | 57.2 | % | | | 57.2 | % |
Combined ratio | | 75.5 | % | (87.2 | )% | 40.2 | % | (12.8 | )% | | | (13.9 | )% |
(1) Due to the timing of receipts of reports prepared by our ceding companies, present value of treaty financial guaranty gross written premiums (PVP) for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a one-quarter lag. PVP of facultative financial guaranty gross written premiums for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a current quarter basis.
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), and adjusted book value (c)].
5
Assured Guaranty Ltd.
Financial Guaranty Direct Segment (1 of 2)
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six Months
2004 | | Six Months
2005 | | Six Months
2006 | |
Present value of gross written premiums (PVP)(a) | | $ | 7.9 | | $ | 39.6 | | $ | 37.5 | | $ | 22.7 | | $ | 39.4 | | $ | 46.0 | | $ | 41.6 | | $ | 98.8 | | $ | 22.2 | | $ | 60.1 | | $ | 140.5 | |
Less: Present value of installment premiums(a) | | 7.9 | | 33.9 | | 35.8 | | 17.6 | | 33.0 | | 38.7 | | 33.2 | | 53.1 | | 22.2 | | 53.4 | | 86.3 | |
Upfront gross written premiums (GWP) | | — | | 5.7 | | 1.7 | | 5.1 | | 6.3 | | 7.3 | | 8.5 | | 45.7 | | — | | 6.8 | | 54.2 | |
Plus: Installment GWP | | 16.1 | | 15.6 | | 22.1 | | 15.8 | | 18.6 | | 19.3 | | 21.8 | | 22.7 | | 43.3 | | 37.9 | | 44.4 | |
Financial guaranty direct GWP | | $ | 16.1 | | $ | 21.3 | | $ | 23.8 | | $ | 20.9 | | $ | 24.9 | | $ | 26.6 | | $ | 30.2 | | $ | 68.4 | | $ | 43.3 | | $ | 44.7 | | $ | 98.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 16.1 | | $ | 21.3 | | $ | 23.8 | | $ | 20.9 | | $ | 24.9 | | $ | 26.6 | | $ | 30.2 | | $ | 68.4 | | $ | 43.3 | | $ | 44.7 | | $ | 98.6 | |
Net written premiums | | 14.1 | | 20.9 | | 23.1 | | 20.4 | | 24.2 | | 26.3 | | 29.7 | | 67.8 | | 42.6 | | 43.5 | | 97.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums: | | | | | | | | | | | | | | | | | | | | | | | |
Public finance | | — | | 0.1 | | 0.1 | | 0.4 | | 0.7 | | 1.5 | | 1.1 | | 1.7 | �� | — | | 0.5 | | 2.8 | |
Structured finance | | 16.5 | | 15.4 | | 20.3 | | 15.6 | | 17.6 | | 18.3 | | 19.6 | | 19.5 | | 56.8 | | 35.9 | | 39.1 | |
Total net earned premiums | | 16.5 | | 15.5 | | 20.4 | | 16.0 | | 18.3 | | 19.8 | | 20.7 | | 21.2 | | 56.8 | | 36.4 | | 41.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expenses: | | | | | | | | | | | | | | | | | | | | | | | |
Case | | 0.5 | | 0.4 | | — | | 4.4 | | — | | 0.4 | | (1.6 | ) | (0.4 | ) | 26.2 | | 4.4 | | (2.0 | ) |
Portfolio | | (1.7 | ) | 0.6 | | (1.5 | ) | 0.6 | | (4.0 | ) | (2.1 | ) | (0.2 | ) | (2.1 | ) | (11.2 | ) | (0.9 | ) | (2.3 | ) |
Total loss and loss adjustment expenses | | (1.2 | ) | 1.0 | | (1.5 | ) | 5.0 | | (4.0 | ) | (1.7 | ) | (1.8 | ) | (2.5 | ) | 15.0 | | 3.5 | | (4.3 | ) |
Profit commission expense | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Acquisition costs | | 1.4 | | 1.6 | | 1.5 | | 1.6 | | 1.6 | | 1.6 | | 1.8 | | 2.3 | | 1.5 | | 3.1 | | 4.2 | |
Operating expenses(1) | | 11.1 | | 11.5 | | 11.4 | | 9.5 | | 11.9 | | 11.5 | | 13.4 | | 12.0 | | 19.3 | | 20.9 | | 25.4 | |
Total expenses | | $ | 11.3 | | $ | 14.1 | | $ | 11.4 | | $ | 16.1 | | $ | 9.5 | | $ | 11.4 | | $ | 13.5 | | $ | 11.8 | | $ | 35.8 | | $ | 27.5 | | $ | 25.3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Underwriting gain (loss) | | $ | 5.2 | | $ | 1.4 | | $ | 9.0 | | $ | (0.1 | ) | $ | 8.8 | | $ | 8.4 | | $ | 7.2 | | $ | 9.4 | | $ | 21.0 | | $ | 8.9 | | $ | 16.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | (7.3 | )% | 6.5 | % | (7.1 | )% | 31.3 | % | (21.9 | )% | (8.6 | )% | (8.7 | )% | (11.7 | )% | 26.4 | % | 9.7 | % | (10.2 | )% |
Expense ratio | | 75.5 | % | 84.6 | % | 63.2 | % | 69.1 | % | 73.7 | % | 66.3 | % | 73.8 | % | 67.4 | % | 36.6 | % | 65.8 | % | 70.6 | % |
Combined ratio | | 68.2 | % | 91.1 | % | 56.1 | % | 100.4 | % | 51.8 | % | 57.7 | % | 65.1 | % | 55.7 | % | 63.0 | % | 75.5 | % | 60.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
(1) | During 2006 the Company implemented a new operating expense methodology to more closely apply expenses to the individual operating segments. This new methodology was based on a comprehensive study and is based on departmental time estimates and headcount. 2005 and 2004 amounts have been restated to show this new methodology on a comparative basis |
| |
Note: | Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), adjusted book value (c), and net present value of estimated future installment premiums in force (d)]. |
6
Assured Guaranty Ltd.
Financial Guaranty Direct Segment (2 of 2)
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six
Months
2004 | | Six
Months
2005 | | Six
Months
2006 | |
PVP(a): | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | — | | $ | 5.7 | | $ | 1.6 | | $ | 5.1 | | $ | 6.3 | | $ | 7.0 | | $ | 8.5 | | $ | 6.0 | | $ | 0.0 | | $ | 6.7 | | $ | 14.4 | |
U.S. structured finance | | 7.9 | | 28.9 | | 31.0 | | 16.1 | | 25.3 | | 20.5 | | 27.6 | | 41.0 | | 15.3 | | 47.1 | | 68.6 | |
International | | — | | 5.0 | | 4.9 | | 1.5 | | 7.7 | | 18.4 | | 5.6 | | 51.8 | | 6.9 | | 6.4 | | 57.5 | |
Total | | $ | 7.9 | | $ | 39.6 | | $ | 37.5 | | $ | 22.7 | | $ | 39.4 | | $ | 46.0 | | $ | 41.6 | | $ | 98.8 | | $ | 22.2 | | $ | 60.1 | | $ | 140.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Par written: | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | — | | $ | 194 | | $ | 77 | | $ | 262 | | $ | 224 | | $ | 383 | | $ | 283 | | $ | 326 | | $ | 1 | | $ | 339 | | $ | 609 | |
U.S. structured finance | | 854 | | 7,163 | | 1,173 | | 2,159 | | 4,635 | | 4,966 | | 4,446 | | 10,943 | | 3,831 | | 3,332 | | 15,389 | |
International | | 508 | | 100 | | 265 | | 102 | | 353 | | 2,569 | | 648 | | 2,210 | | 346 | | 367 | | 2,858 | |
Total | | $ | 1,361 | | $ | 7,457 | | $ | 1,515 | | $ | 2,524 | | $ | 5,212 | | $ | 7,918 | | $ | 5,377 | | $ | 13,479 | | $ | 4,178 | | $ | 4,038 | | $ | 18,856 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Par outstanding: | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | 1,991 | | $ | 2,189 | | $ | 2,238 | | $ | 2,421 | | $ | 2,641 | | $ | 3,022 | | $ | 3,250 | | $ | 2,471 | | $ | 2,036 | | $ | 2,421 | | $ | 2,471 | |
U.S. structured finance | | 22,192 | | 25,166 | | 24,589 | | 23,873 | | 26,781 | | 28,917 | | 31,559 | | 38,847 | | 22,063 | | 23,873 | | 38,847 | |
International | | 2,274 | | 4,257 | | 3,763 | | 3,725 | | 3,975 | | 6,400 | | 7,215 | | 9,806 | | 1,676 | | 3,725 | | 9,806 | |
Total | | $ | 26,457 | | $ | 31,612 | | $ | 30,590 | | $ | 30,019 | | $ | 33,397 | | $ | 38,338 | | $ | 42,024 | | $ | 51,124 | | $ | 25,775 | | $ | 30,019 | | $ | 51,124 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net present value of installment premiums in force:(d) | | $ | 218.9 | | $ | 231.0 | | $ | 238.3 | | $ | 216.4 | | $ | 230.4 | | $ | 249.6 | | $ | 265.7 | | $ | 300.5 | | $ | 219.7 | | $ | 216.4 | | $ | 300.5 | |
Unearned premium reserve net of ceded reinsurance | | 14.7 | | 20.3 | | 23.0 | | 27.0 | | 33.2 | | 39.6 | | 48.6 | | 95.2 | | 17.1 | | 27.0 | | 95.2 | |
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), adjusted book value (c), and net present value of estimated future installment premiums in force (d)].
7
Assured Guaranty Ltd.
Financial Guaranty Reinsurance Segment(1) (1 of 2)
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six
Months
2004 | | Six
Months
2005 | | Six
Months
2006 | |
Present value of gross written premiums (PVP)(a) | | $ | 38.9 | | $ | 35.7 | | $ | 32.1 | | $ | 35.2 | | $ | 22.5 | | $ | 37.9 | | $ | 20.1 | | $ | 49.6 | | $ | 118.2 | | $ | 67.3 | | $ | 69.7 | |
Less: Present value of installment premiums(a) | | 14.5 | | 11.6 | | 12.1 | | 20.7 | | 7.2 | | 18.5 | | 11.0 | | 17.7 | | 57.2 | | 32.8 | | 28.7 | |
Upfront gross written premiums (GWP) | | 24.5 | | 24.1 | | 20.0 | | 14.6 | | 15.3 | | 19.4 | | 9.1 | | 31.9 | | 61.0 | | 34.5 | | 41.0 | |
Less: Upfront premium due to novations(2) | | — | | — | | — | | 18.4 | | — | | — | | — | | — | | — | | 18.4 | | — | |
Plus: Installment GWP(3) | | 11.1 | | 12.4 | | 14.0 | | 12.0 | | 12.0 | | 9.1 | | 9.7 | | 9.8 | | 27.2 | | 26.1 | | 19.5 | |
Financial guaranty reinsurance GWP | | $ | 35.6 | | $ | 36.5 | | $ | 34.0 | | $ | 8.2 | | $ | 27.3 | | $ | 28.5 | | $ | 18.8 | | $ | 41.7 | | $ | 88.2 | | $ | 42.2 | | $ | 60.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums: | | | | | | | | | | | | | | | | | | | | | | | |
Treaty | | $ | 25.3 | | $ | 32.1 | | $ | 13.4 | | $ | 4.3 | | $ | 21.0 | | $ | 24.6 | | $ | 12.0 | | $ | 29.1 | | $ | 78.4 | | $ | 17.7 | | $ | 41.1 | |
Facultative | | 10.3 | | 4.4 | | 20.6 | | 3.9 | | 6.3 | | 3.9 | | 6.8 | | 12.6 | | 9.8 | | 24.5 | | 19.4 | |
Total gross written premiums | | $ | 35.6 | | $ | 36.5 | | $ | 34.0 | | $ | 8.2 | | $ | 27.3 | | $ | 28.5 | | $ | 18.8 | | $ | 41.7 | | $ | 88.2 | | $ | 42.2 | | $ | 60.5 | |
Net written premiums | | 35.6 | | 36.3 | | 34.0 | | 8.0 | | 27.3 | | 28.5 | | 18.5 | | 41.3 | | 88.2 | | 42.0 | | 59.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums: | | | | | | | | | | | | | | | | | | | | | | | |
Scheduled net earned premiums | | 26.7 | | 31.5 | | 21.6 | | 23.6 | | 27.2 | | 21.3 | | 19.7 | | 21.4 | | 38.7 | | 45.2 | | 41.2 | |
Net earned premiums from refundings | | 5.2 | | 5.0 | | 1.4 | | 3.6 | | 4.8 | | 2.2 | | 3.6 | | 1.7 | | 7.3 | | 5.0 | | 5.3 | |
Total net earned premiums | | 31.9 | | 36.5 | | 23.0 | | 27.2 | | 32.0 | | 23.5 | | 23.3 | | 23.1 | | 46.0 | | 50.2 | | 46.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expenses: | | | | | | | | | | | | | | | | | | | | | | | |
Case | | 1.4 | | 1.2 | | (7.5 | ) | (60.4 | ) | (0.2 | ) | 4.0 | | 2.3 | | 1.8 | | 0.6 | | (67.9 | ) | 4.1 | |
Portfolio | | 9.4 | | 0.4 | | 0.4 | | (3.7 | ) | 4.5 | | 1.6 | | 0.5 | | 3.9 | | 2.4 | | (3.3 | ) | 4.4 | |
Total loss and loss adjustment expenses | | 10.8 | | 1.6 | | (7.1 | ) | (64.1 | ) | 4.3 | | 5.6 | | 2.8 | | 5.7 | | 3.0 | | (71.2 | ) | 8.5 | |
Profit commission expense | | (0.2 | ) | 0.9 | | — | | 2.3 | | 1.1 | | 1.4 | | 0.4 | | 1.0 | | 0.4 | | 2.3 | | 1.4 | |
Acquisition costs | | 12.1 | | 13.0 | | 8.1 | | 9.5 | | 11.0 | | 8.3 | | 8.7 | | 8.5 | | 13.7 | | 17.6 | | 17.2 | |
Operating expenses(4) | | 2.7 | | 2.8 | | 2.8 | | 4.7 | | 2.9 | | 3.4 | | 3.4 | | 3.4 | | 4.7 | | 7.5 | | 6.8 | |
Total expenses | | $ | 25.4 | | $ | 18.2 | | $ | 3.8 | | $ | (47.6 | ) | $ | 19.2 | | $ | 18.7 | | $ | 15.3 | | $ | 18.5 | | $ | 21.8 | | $ | (43.8 | ) | $ | 33.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Underwriting gain | | $ | 6.5 | | $ | 18.2 | | $ | 19.2 | | $ | 74.8 | | $ | 12.8 | | $ | 4.8 | | $ | 8.0 | | $ | 4.6 | | $ | 24.2 | | $ | 94.0 | | $ | 12.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | 33.9 | % | 4.4 | % | (30.9 | )% | (235.7 | )% | 13.3 | % | 23.9 | % | 12.0 | % | 24.6 | % | 6.5 | % | (141.8 | )% | 18.3 | % |
Expense ratio | | 45.6 | % | 45.6 | % | 47.4 | % | 60.7 | % | 46.8 | % | 55.8 | % | 53.6 | % | 55.4 | % | 40.8 | % | 54.6 | % | 54.5 | % |
Combined ratio | | 79.5 | % | 50.0 | % | 16.5 | % | (175.0 | )% | 60.1 | % | 79.7 | % | 65.6 | % | 80.0 | % | 47.3 | % | (87.2 | )% | 72.8 | % |
(1) Due to the timing of receiving reports prepared by our ceding companies, present value of treaty financial guaranty gross written premiums (PVP) for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a one-quarter lag. PVP of facultative financial guaranty gross written premiums for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a current quarter basis.
(2) Relates to reassumption by FSA of approximately $820 million par value of healthcare related business.
(3) Installment gross written premiums includes the reclassification of certain deals originally recorded as installment that were discovered during 3Q-04 to be upfront premiums. As a result, prior period amounts have been restated. This reclass had an immaterial impact on our QTD and YTD results of operations and financial condition.
(4) During 2006 the Company implemented a new operating expense methodology to more closely apply expenses to the individual operating segments. This new methodology was based on a comprehensive study and is based on departmental time estimates and headcount. 2005 and 2004 amounts have been restated to show this new methodology on a comparative basis.
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), and adjusted book value (c)].
8
Assured Guaranty Ltd.
Financial Guaranty Reinsurance Segment(1) (2 of 2)
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six
Months
2004 | | Six
Months
2005 | | Six
Months
2006 | |
PVP(a): | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | 25.5 | | $ | 21.6 | | $ | 18.9 | | $ | 15.4 | | $ | 16.5 | | $ | 23.1 | | $ | 8.5 | | $ | 29.7 | | $ | 55.5 | | $ | 34.4 | | $ | 38.2 | |
U.S. structured finance | | 4.1 | | 7.5 | | 3.1 | | 4.9 | | 2.3 | | 8.7 | | 3.4 | | 2.0 | | 26.4 | | 7.9 | | 5.3 | |
International | | 9.4 | | 6.6 | | 10.1 | | 15.0 | | 3.7 | | 6.1 | | 8.3 | | 17.9 | | 36.3 | | 25.0 | | 26.2 | |
Total | | $ | 38.9 | | $ | 35.7 | | $ | 32.1 | | $ | 35.2 | | $ | 22.5 | | $ | 37.9 | | $ | 20.1 | | $ | 49.6 | | $ | 118.2 | | $ | 67.3 | | $ | 69.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Par written: | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | 2,015 | | $ | 1,373 | | $ | 1,965 | | $ | 265 | | $ | 1,155 | | $ | 1,710 | | $ | 1,631 | | $ | 718 | | $ | 2,955 | | $ | 2,230 | | $ | 2,350 | |
U.S. structured finance | | 421 | | 682 | | 1,718 | | 308 | | 309 | | 616 | | 444 | | 251 | | 1,225 | | 2,026 | | 695 | |
International | | 333 | | 249 | | 241 | | 418 | | 186 | | 260 | | 677 | | 835 | | 1,125 | | 659 | | 1,512 | |
Total | | $ | 2,769 | | $ | 2,304 | | $ | 3,924 | | $ | 991 | | $ | 1,650 | | $ | 2,586 | | $ | 2,752 | | $ | 1,804 | | $ | 5,305 | | $ | 4,915 | | $ | 4,557 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Par outstanding: | | | | | | | | | | | | | | | | | | | | | | | |
U.S. public finance | | $ | 49,843 | | $ | 48,218 | | $ | 49,318 | | $ | 47,878 | | $ | 47,696 | | $ | 47,748 | | $ | 48,309 | | $ | 48,316 | | $ | 49,243 | | $ | 47,878 | | $ | 48,316 | |
U.S. structured finance | | 10,125 | | 9,814 | | 10,404 | | 10,325 | | 9,686 | | 9,661 | | 9,387 | | 8,314 | | 10,435 | | 10,325 | | 8,314 | |
International | | 6,042 | | 5,948 | | 6,082 | | 6,645 | | 6,540 | | 6,719 | | 7,196 | | 7,857 | | 5,898 | | 6,645 | | 7,857 | |
Total | | $ | 66,010 | | $ | 63,980 | | $ | 65,804 | | $ | 64,848 | | $ | 63,922 | | $ | 64,127 | | $ | 64,893 | | $ | 64,487 | | $ | 65,575 | | $ | 64,848 | | $ | 64,487 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net present value of installment premiums in force(d) | | $ | 138.0 | | $ | 138.9 | | $ | 142.9 | | $ | 152.3 | | $ | 147.4 | | $ | 156.1 | | $ | 153.8 | | $ | 158.9 | | $ | 147.2 | | $ | 152.3 | | $ | 158.9 | |
Unearned premium reserve net of ceded reinsurance | | 444.2 | | 443.8 | | 454.8 | | 435.6 | | 430.9 | | 436.0 | | 431.2 | | 449.4 | | 441.0 | | 435.6 | | 449.4 | |
(1) Due to the timing of receiving reports prepared by our ceding companies, present value of treaty financial guaranty gross written premiums (PVP) for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a one-quarter lag. PVP of facultative financial guaranty gross written premiums for installment premiums, par written and par outstanding in our Financial Guaranty Reinsurance segment are reported on a current quarter basis.
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), adjusted book value (c), and net present value of estimated future installment premiums in force (d)].
9
Assured Guaranty Ltd.
Mortgage Guaranty Segment
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six
Months
2004 | | Six
Months
2005 | | Six
Months
2006 | |
Present value of gross written premiums (PVP)(a) | | $ | 1.1 | | $ | 6.9 | | $ | 13.1 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 19.2 | | $ | 13.1 | | $ | — | |
Less: Present value of installment premiums(a) | | 1.1 | | 6.9 | | — | | — | | — | | — | | — | | — | | 8.9 | | — | | — | |
Upfront gross written premiums (GWP) | | — | | — | | 13.1 | | — | | — | | — | | — | | — | | 10.3 | | 13.1 | | — | |
Plus: Installment GWP | | 5.3 | | 4.2 | | 6.3 | | 1.9 | | 1.7 | | 2.7 | | 2.6 | | 1.2 | | 4.6 | | 8.2 | | 3.8 | |
Mortgage guaranty GWP | | $ | 5.3 | | $ | 4.2 | | $ | 19.4 | | $ | 1.9 | | $ | 1.7 | | $ | 2.7 | | $ | 2.6 | | $ | 1.2 | | $ | 14.9 | | $ | 21.3 | | $ | 3.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Income statement: | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 5.3 | | $ | 4.2 | | $ | 19.4 | | $ | 1.9 | | $ | 1.7 | | $ | 2.7 | | $ | 2.6 | | $ | 1.2 | | $ | 14.9 | | $ | 21.3 | | $ | 3.8 | |
Net written premiums | | 5.3 | | 4.2 | | 19.4 | | 1.9 | | 1.7 | | 2.7 | | 2.6 | | 1.2 | | 14.9 | | 21.3 | | 3.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums | | 5.1 | | 5.2 | | 4.6 | | 5.1 | | 4.3 | | 4.6 | | 4.2 | | 3.7 | | 23.4 | | 9.7 | | 7.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expenses: | | | | | | | | | | | | | | | | | | | | | | | |
Case | | 0.2 | | (0.2 | ) | 0.1 | | (0.1 | ) | 0.2 | | (0.2 | ) | — | | 0.1 | | — | | — | | 0.1 | |
Portfolio and IBNR | | (5.6 | ) | (1.8 | ) | 0.1 | | 0.1 | | 0.1 | | (4.0 | ) | (0.2 | ) | 0.3 | | (4.5 | ) | 0.2 | | 0.1 | |
Total loss and loss adjustment expenses | | (5.4 | ) | (2.0 | ) | 0.2 | | — | | 0.3 | | (4.2 | ) | (0.2 | ) | 0.4 | | (4.5 | ) | 0.2 | | 0.2 | |
Profit commission expense | | 1.3 | | 3.5 | | 1.0 | | 1.0 | | 0.9 | | 5.1 | | 0.9 | | 0.7 | | 9.3 | | 2.0 | | 1.6 | |
Acquisition costs | | 0.5 | | 0.6 | | 0.5 | | 0.6 | | 0.4 | | 0.4 | | 0.3 | | 0.3 | | 2.6 | | 1.1 | | 0.6 | |
Operating expenses(1) | | 0.3 | | 0.3 | | 0.3 | | 0.3 | | 0.3 | | 0.3 | | 0.3 | | 0.3 | | 0.5 | | 0.6 | | 0.6 | |
Total expenses | | $ | (3.3 | ) | $ | 2.4 | | $ | 2.0 | | $ | 1.9 | | $ | 1.9 | | $ | 1.7 | | $ | 1.3 | | $ | 1.7 | | $ | 7.9 | | $ | 3.9 | | $ | 3.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Underwriting gain | | $ | 8.4 | | $ | 2.8 | | $ | 2.6 | | $ | 3.2 | | $ | 2.4 | | $ | 2.9 | | $ | 2.8 | | $ | 2.0 | | $ | 15.5 | | $ | 5.8 | | $ | 4.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | (105.9 | )% | (37.8 | )% | 4.3 | % | — | | 6.9 | % | (92.1 | )% | (3.7 | )% | 9.4 | % | (19.2 | )% | 2.1 | % | 2.5 | % |
Expense ratio | | 40.8 | % | 84.2 | % | 39.1 | % | 37.5 | % | 37.5 | % | 129.1 | % | 36.1 | % | 36.4 | % | 53.1 | % | 38.1 | % | 36.2 | % |
Combined ratio | | (65.1 | )% | 46.4 | % | 43.4 | % | 37.5 | % | 44.4 | % | 37.0 | % | 32.4 | % | 45.8 | % | 33.9 | % | 40.2 | % | 38.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Risk in force | | $ | 2,437 | | $ | 2,325 | | $ | 2,582 | | $ | 2,547 | | $ | 2,389 | | $ | 2,332 | | $ | 1,970 | | $ | 1,960 | | $ | 2,394 | | $ | 2,547 | | $ | 1,960 | |
Risk written | | 136 | | 271 | | 419 | | — | | — | | — | | — | | — | | 237 | | 419 | | — | |
Unearned premium reserve net of ceded reinsurance | | 43.7 | | 42.7 | | 57.5 | | 54.2 | | 51.5 | | 49.7 | | 48.1 | | 45.6 | | 43.5 | | 54.2 | | 45.6 | |
(1) During 2006 the Company implemented a new operating expense methodology to more closely apply expenses to the individual operating segments. This new methodology was based on a comprehensive study and is based on departmental time estimates and headcount. 2005 and 2004 amounts have been restated to show this new methodology on a comparative basis.
Note: Please refer to endnotes for explanation of non-GAAP financial measures [PVP (a), operating income and operating ROE (b), and adjusted book value (c)].
10
Assured Guaranty Ltd.
Other Segment
(dollars in millions)
| | 3Q-04 | | 4Q-04 | | 1Q-05 | | 2Q-05 | | 3Q-05 | | 4Q-05 | | 1Q-06 | | 2Q-06 | | Six
Months
2004 | | Six
Months
2005 | | Six
Months
2006 | |
Income statement: | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 5.2 | | $ | 3.8 | | $ | 0.9 | | $ | 9.5 | | $ | 21.6 | | $ | 0.4 | | $ | 3.8 | | $ | 0.1 | | $ | (83.6 | ) | $ | 10.4 | | $ | 3.9 | |
Net written premiums | | — | | — | | — | | — | | — | | — | | — | | — | | (182.5 | ) | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums | | — | | — | | — | | — | | — | | — | | — | | — | | (48.9 | ) | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expenses | | — | | (0.4 | ) | (1.1 | ) | — | | (1.3 | ) | — | | (1.2 | ) | (10.1 | ) | (49.9 | ) | (1.1 | ) | (11.3 | ) |
Profit commission expense | | — | | — | | — | | — | | — | | — | | — | | — | | 0.6 | | — | | — | |
Acquisition costs | | — | | — | | — | | — | | — | | — | | — | | — | | 3.7 | | — | | — | |
Operating expenses | | — | | — | | — | | — | | — | | — | | — | | — | | 3.5 | | — | | — | |
Total expenses | | $ | — | | $ | (0.4 | ) | $ | (1.1 | ) | $ | — | | $ | (1.3 | ) | $ | — | | $ | (1.2 | ) | $ | (10.1 | ) | $ | (42.0 | ) | $ | (1.1 | ) | $ | (11.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Underwriting gain (loss) | | $ | — | | $ | 0.4 | | $ | 1.1 | | $ | — | | $ | 1.3 | | $ | — | | $ | 1.2 | | $ | 10.1 | | $ | (7.1 | ) | $ | 1.1 | | $ | 11.3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | — | | — | | — | | — | | — | | — | | — | | — | | 102.0 | % | — | | — | |
Expense ratio | | — | | — | | — | | — | | — | | — | | — | | — | | (16.1 | )% | — | | — | |
Combined ratio | | — | | — | | — | | — | | — | | — | | — | | — | | 85.9 | % | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums: | | | | | | | | | | | | | | | | | | | | | | | |
Equity layer credit protection | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5.4 | | $ | — | | $ | — | |
Trade credit reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | (25.3 | ) | — | | — | |
Title reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | 3.3 | | — | | — | |
Auto residual value reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | (32.2 | ) | — | | — | |
Total net earned premiums | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (48.9 | ) | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Underwriting gain: | | | | | | | | | | | | | | | | | | | | | | | |
Equity layer credit protection | | $ | — | | $ | 0.4 | | $ | 1.1 | | $ | — | | $ | 1.3 | | $ | — | | $ | 1.2 | | $ | 10.1 | | $ | 3.0 | | $ | 1.1 | | $ | 11.3 | |
Trade credit reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | (2.8 | ) | — | | — | |
Title reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | 1.0 | | — | | — | |
Auto residual value reinsurance | | — | | — | | — | | — | | — | | — | | — | | — | | (7.9 | ) | — | | — | |
Total underwriting gain (loss) | | $ | — | | $ | 0.4 | | $ | 1.1 | | $ | — | | $ | 1.3 | | $ | — | | $ | 1.2 | | $ | 10.1 | | $ | (7.1 | ) | $ | 1.1 | | $ | 11.3 | |
11
Assured Guaranty Ltd.
Loss and LAE Reserves by Segment and Type
(dollars in millions)
| | As of | | As of | |
| | June 30, | | December 31, | |
| | 2006 | | 2005 | |
Reserves by segment: | | | | | |
Financial guaranty direct | | $ | 6.6 | | $ | 13.1 | |
Financial guaranty reinsurance | | 86.2 | | 86.3 | |
Mortgage guaranty | | 7.0 | | 7.0 | |
Other | | 14.8 | | 14.8 | |
Total | | $ | 114.6 | | $ | 121.2 | |
| | As of | | As of | |
| | June 30, | | December 31, | |
| | 2006 | | 2005 | |
Reserves by type: | | | | | |
Case | | $ | 38.4 | | $ | 45.9 | |
IBNR | | 11.6 | | 11.6 | |
Portfolio | | 64.6 | | 63.7 | |
Total | | $ | 114.6 | | $ | 121.2 | |
| | As of June 30, 2006 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
Reserves by segment and type: | | | | | | | | | | | | | |
Case | | $ | — | | $ | 30.9 | | $ | 0.3 | | $ | 31.2 | | $ | 7.2 | | $ | 38.4 | |
IBNR | | — | | — | | 4.0 | | 4.0 | | 7.6 | | 11.6 | |
Portfolio | | 6.6 | | 55.3 | | 2.7 | | 64.6 | | — | | 64.6 | |
Total | | $ | 6.6 | | $ | 86.2 | | $ | 7.0 | | $ | 99.8 | | $ | 14.8 | | $ | 114.6 | |
| | | | | | | | | | | | | |
Portfolio reserves associated with CMC credits | | $ | 0.9 | | $ | 33.4 | | — | | $ | 34.3 | | — | | $ | 34.3 | |
| | As of December 31, 2005 | |
| | Financial
Guaranty
Direct | | Financial
Guaranty
Reinsurance | | Mortgage
Guaranty | | Total
Financial
Guaranty | | Other | | Total | |
Reserves by segment and type: | | | | | | | | | | | | | |
Case | | $ | 4.5 | | $ | 33.8 | | $ | 0.3 | | $ | 38.6 | | $ | 7.3 | | $ | 45.9 | |
IBNR | | — | | — | | 4.1 | | 4.1 | | 7.5 | | 11.6 | |
Portfolio | | 8.6 | | 52.5 | | 2.6 | | 63.7 | | — | | 63.7 | |
Total | | $ | 13.1 | | $ | 86.3 | | $ | 7.0 | | $ | 106.4 | | $ | 14.8 | | $ | 121.2 | |
| | | | | | | | | | | | | |
Portfolio reserves associated with CMC credits | | $ | 0.6 | | $ | 25.7 | | — | | $ | 26.4 | | $ | — | | $ | 26.4 | |
12
Assured Guaranty Ltd.
Investment Portfolio
as of June 30, 2006
(dollars in millions)
| | | | Pre-Tax | | | | Annualized | |
| | Amortized | | Book | | | | Investment | |
| | Cost | | Yield | | Fair Value | | Income | |
Fixed maturity securities available for sale: | | | | | | | | | |
| | | | | | | | | |
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 135.3 | | 5.0 | % | $ | 133.3 | | $ | 6.8 | |
Agency obligations | | 154.6 | | 5.4 | % | 155.2 | | 8.3 | |
Foreign government securities | | 21.4 | | 4.8 | % | 21.3 | | 1.0 | |
Obligations of states and political subdivisions | | 324.6 | | 4.8 | % | 331.4 | | 15.6 | |
Insured obligations of state and political subdivisions | | 474.2 | | 5.0 | % | 494.0 | | 23.7 | |
Corporate securities | | 137.1 | | 5.7 | % | 137.7 | | 7.8 | |
Mortgage-backed securities: | | | | | | | | | |
Pass-thrus | | 539.9 | | 5.2 | % | 520.9 | | 28.1 | |
PACs | | 66.7 | | 4.6 | % | 63.7 | | 3.1 | |
Asset-backed securities | | 213.7 | | 4.9 | % | 211.7 | | 10.5 | |
Total fixed maturity securities available for sale | | 2,067.5 | | 5.1 | % | 2,069.2 | | 104.9 | |
Short-term investments | | 170.7 | | 4.8 | % | 170.7 | | 8.2 | |
Total investments | | $ | 2,238.2 | | 5.1 | % | $ | 2,239.9 | | $ | 113.1 | |
Ratings distribution(1): | | Fair Value | | % | |
Treasury and U.S. government obligations | | $ | 133.3 | | 6.4 | % |
Agency obligations | | 155.2 | | 7.5 | % |
AAA/Aaa | | 1,423.2 | | 68.8 | % |
AA/Aa | | 250.7 | | 12.1 | % |
A/A | | 106.8 | | 5.2 | % |
BBB/Baa | | — | | | |
Total | | $ | 2,069.2 | | 100.0 | % |
| | | | | |
Duration of investment portfolio (in years): | | | | 4.3 | |
(1) Ratings are represented by the lower of the Moody’s Investor Services and Standard & Poor’s classifications.
13
Assured Guaranty Ltd.
Financial Guaranty Profile (1 of 3)
(dollars in millions)
| | Gross Par
Written | | As of June 30, 2006: | |
Sector | | 2Q 2006 | | Net Par
Outstanding | | % | | Avg. Rating(7) | |
U.S. public finance | | | | | | | | | |
General obligation | | $ | 391 | | $ | 12,203 | | 10.6 | % | A+ | |
Tax backed | | 129 | | 11,112 | | 9.6 | % | A+ | |
Municipal utilities | | 116 | | 9,890 | | 8.6 | % | A | |
Transportation | | 70 | | 6,263 | | 5.4 | % | A | |
Healthcare | | 160 | | 5,944 | | 5.1 | % | A | |
Investor-owned utilities | | 73 | | 1,502 | | 1.3 | % | A- | |
Higher education | | 105 | | 1,302 | | 1.1 | % | A | |
Housing | | 1 | | 1,122 | | 1.0 | % | AA- | |
Structured municipal(1) | | — | | 713 | | 0.6 | % | AAA | |
Other public finance(2) | | — | | 737 | | 0.6 | % | A | |
Total U.S. public finance | | $ | 1,044 | | $ | 50,787 | | 43.9 | % | A+ | |
| | | | | | | | | |
U.S. structured finance | | | | | | | | | |
CDOs(3) | | $ | 5,163 | | $ | 25,340 | | 21.9 | % | AAA | |
Mortgage-backed and home equity | | 3,874 | | 11,564 | | 10.0 | % | AA- | |
Commercial receivables(4) | | 1,958 | | 5,743 | | 5.0 | % | AA | |
Consumer receivables(5) | | 24 | | 2,778 | | 2.4 | % | AA- | |
Other structured finance(6) | | 175 | | 1,734 | | 1.5 | % | AA | |
Single name corporate CDS | | — | | 1 | | — | | AAA | |
Total U.S. structured finance | | $ | 11,195 | | $ | 47,160 | | 40.8 | % | AA+ | |
| | | | | | | | | |
International | | | | | | | | | |
Other structured finance | | $ | 704 | | $ | 6,140 | | 5.3 | % | A+ | |
Public finance | | 1,628 | | 5,105 | | 4.4 | % | A | |
Infrastructure | | 87 | | 3,299 | | 2.9 | % | A- | |
CDOs(3) | | 626 | | 3,119 | | 2.7 | % | AAA | |
Total international | | $ | 3,045 | | $ | 17,663 | | 15.3 | % | A+ | |
| | | | | | | | | |
Total exposures | | $ | 15,283 | | $ | 115,611 | | 100.0 | % | AA- | |
| | | | | | | | | |
Mortgage guaranty risk in force | | $ | — | | $ | 1,960 | | NA | | NA | |
(1) Structured municipal: includes excess of loss reinsurance on portfolios of municipal credits where the Company attached in excess of the AAA rating level.
(2) Other public finance: primarily includes student loans and government-sponsored project finance.
(3) Collateralized debt obligations (CDOs) are structured financings backed by a pool of debt obligations. These financings are typically structured in multiple tranches (layers) from equity (first loss) through super senior (high excess). Losses on defaulted pool assets are allocated successively first to the equity tranche then to higher rated tranches.
(4) Commercial receivables: principally includes equipment leases and commercial mortgage-backed securities.
(5) Consumer receivables: principally includes auto loan receivables and credit card receivables.
(6) Other structured finance: predominantly trade receivable securitization, secured structured lending, and future flow transactions.
(7) Assured Guaranty internal rating. Our scale is comparable to that of the nationally recognized rating agencies.
14
Assured Guaranty Ltd.
Financial Guaranty Profile (2 of 3)
(dollars in millions)
Distribution by ratings of financial guaranty portfolio
| | June 30, 2006 | | December 31, 2005 | |
| | Net Par | | | | Net Par | | | |
Ratings(1) | | Outstanding | | % | | Outstanding | | % | |
AAA/Aaa | | $ | 43,737 | | 37.8 | % | $ | 34,492 | | 33.7 | % |
AA/Aa | | 21,036 | | 18.2 | % | 19,978 | | 19.5 | % |
A/A | | 32,151 | | 27.8 | % | 30,258 | | 29.5 | % |
BBB/Baa | | 17,278 | | 14.9 | % | 16,405 | | 16.0 | % |
Below investment grade | | 1,409 | | 1.3 | % | 1,332 | | 1.3 | % |
Total exposures | | $ | 115,611 | | 100.0 | % | $ | 102,465 | | 100.0 | % |
Distribution by ratings of CDO exposure
| | June 30, 2006 | | December 31, 2005 | |
Ratings(1) | | Net Par
Outstanding | | % | | Net Par
Outstanding | | % | |
AAA/Aaa | | $ | 25,253 | | 88.7 | % | $ | 19,615 | | 85.3 | % |
AA/Aa | | 2,948 | | 10.4 | % | 2,800 | | 12.2 | % |
A/A | | 146 | | 0.5 | % | 326 | | 1.4 | % |
BBB/Baa | | 59 | | 0.2 | % | 189 | | 0.8 | % |
Below investment grade | | 53 | | 0.2 | % | 63 | | 0.3 | % |
Total exposures | | $ | 28,459 | | 100.0 | % | $ | 22,993 | | 100.0 | % |
Distribution of CDOs by year of issue as of June 30, 2006
| | Net Par | | | |
| | Outstanding | | % | |
2000 and prior | | $ | 569 | | 2.0 | % |
2001 | | 2,221 | | 7.8 | % |
2002 | | 3,861 | | 13.6 | % |
2003 | | 3,453 | | 12.1 | % |
2004 | | 1,532 | | 5.4 | % |
2005 | | 7,947 | | 27.9 | % |
2006 year to date | | 8,877 | | 31.2 | % |
| | $ | 28,459 | | 100.0 | % |
Distribution of CDOs by underlying asset type as of June 30, 2006
| | Net Par | | | |
Asset Type | | Outstanding | | % | |
Pooled Corporate Debt Obligations | | $ | 26,511 | | 93.2 | % |
CDO of ABS | | 1,841 | | 6.5 | % |
Emerging Market | | 107 | | 0.3 | % |
| | $ | 28,459 | | 100.0 | % |
(1) Assured Guaranty internal rating. Our scale is comparable to that of the nationally recognized rating agencies.
15
Assured Guaranty Ltd.
Financial Guaranty Profile (3 of 3)
(dollars in millions)
Geographic distribution of financial guaranty portfolio, as of June 30, 2006
| | Net Par | | | |
U.S.: | | Outstanding | | % | |
California | | $ | 7,567 | | 6.5 | % |
New York | | 5,722 | | 4.9 | % |
Texas | | 3,323 | | 2.9 | % |
Illinois | | 3,168 | | 2.7 | % |
Florida | | 2,687 | | 2.3 | % |
Massachusetts | | 2,574 | | 2.2 | % |
Pennsylvania | | 2,213 | | 1.9 | % |
New Jersey | | 2,039 | | 1.8 | % |
Washington | | 1,760 | | 1.5 | % |
Puerto Rico | | 1,654 | | 1.4 | % |
Other states | | 18,080 | | 15.6 | % |
Mortgage and structured (multiple states) | | 47,160 | | 40.8 | % |
Total U.S. | | $ | 97,947 | | 84.7 | % |
| | | | | |
International: | | | | | |
United Kingdom | | $ | 11,463 | | 9.9 | % |
Australia | | 954 | | 0.8 | % |
Turkey | | 484 | | 0.4 | % |
Ireland | | 423 | | 0.4 | % |
Germany | | 360 | | 0.3 | % |
Other | | 3,979 | | 3.4 | % |
Total International | | $ | 17,663 | | 15.3 | % |
| | | | | |
Total exposures | | $ | 115,611 | | 100.0 | % |
16
Assured Guaranty Ltd.
Non-Investment Grade Exposures
as of June 30, 2006
(dollars in millions)
Non-Investment Grade Exposures by: | | Weighted Average | | Net Par | | Average | |
Asset Type | | Remaining Life | | Outstanding | | Rating(1) | |
| | | | | | | |
Public finance | | | | | | | |
Infrastructure | | 15.2 | | $ | 241.0 | | CC | |
Transportation | | 20.0 | | 221.9 | | B | |
General obligation | | 16.7 | | 103.8 | | BB | |
Tax backed | | 16.6 | | 77.7 | | B+ | |
Healthcare | | 11.1 | | 60.5 | | BB | |
Municipal utilities | | 10.9 | | 13.4 | | C | |
Investor-owned utilities | | 15.2 | | 7.9 | | BB | |
Housing | | 12.9 | | 4.5 | | B- | |
Other public finance | | 16.3 | | 3.5 | | D | |
Total public finance | | 16.6 | | $ | 734.1 | | B- | |
| | | | | | | |
Structured finance | | | | | | | |
Commercial receivables | | 9.6 | | $ | 277.5 | | B | |
Consumer receivables | | 2.6 | | 182.4 | | BB | |
Mortgage-backed and home equity | | 9.9 | | 156.2 | | CCC- | |
CDOs | | 4.6 | | 52.8 | | B+ | |
Other structured finance | | 4.5 | | 6.2 | | D | |
Total structured finance | | 7.3 | | $ | 675.1 | | B- | |
| | | | | | | |
Total non-investment grade exposures | | 12.2 | | $ | 1,409.2 | | B | |
Top Ten Non-Investment Grade Exposures as of June 30, 2006
Name or Description | | Average Rating | | Weighted
Average
Remaining Life | | Net Par
Outstanding | |
Eurotunnel - Fixed-Link Finance & Fixed-Link Finance 2(2) | | C | | 16.4 | | $ | 205 | |
Public Finance Domestic Infrastructure Transaction | | B | | 21.7 | | 169 | |
Structured Finance Domestic EETC Transactions(3) | | BB | | 8.1 | | 131 | |
Metris Master Credit Card Trust | | BB | | 2.8 | | 99 | |
Puerto Rico Public Finance Corporation | | BB+ | | 17.4 | | 96 | |
Providian Gateway Master Trust(4) | | BB+ | | 2.4 | | 79 | |
Structured Finance Domestic Manufactured Housing Transactions(5) | | CC | | 7.3 | | 68 | |
Northwest Airlines EETC Transactions(6) | | D | | 9.1 | | 66 | |
International Airport Facility | | BB | | 7.6 | | 35 | |
Structured Finance Domestic Franchise Loan Receivable Transactions(7) | | B | | 14.5 | | 34 | |
Total | | B- | | 12.3 | | $ | 982 | |
(1) Assured Guaranty internal rating. Our scale is comparable to that of the nationally recognized rating agencies.
(2) Exposure comprised of four series: $137.7 million, $36.0 million, $25.1 million, and $6.7 million - all rated ‘C’.
(3) Exposure comprised of three series: $42.3 million, $16.1 million, and $73.1million - all rated ‘BB’.
(4) Exposure comprised of two series, one in the amount of $22.5 million rated ‘BB+’ and the other for $56.0 million rated ‘BB+’.
(5) Exposure comprised of seven series: $0.6 million, $1.6 million rated ‘BB’, $1.6 million rated ‘B’, $5.9 million, $8.0 million rated ‘B-’, and $22.9 million, $27.1 million - rated ‘D’.
(6) Exposure comprised of two series, one in the amount of $14.3 million and the other for $51.5 million both rated ‘D’.
(7) Exposure comprised of two series, one in the amount of $16.2 million and the other for $17.7 million both rated ‘B’.
17
Assured Guaranty Ltd.
Closely Monitored Credits (“CMC”)
(dollars in millions)
Net par outstanding by credit monitoring category(1)
| | June 30, 2006 | |
Description | | Net Par
Outstanding | | % | | Number of
Credits in
Category | |
Fundamentally sound risk | | $ | 114,102 | | 98.7 | % | | |
| | | | | | | |
Closely monitored credits: | | | | | | | |
Category 1 | | 874 | | 0.8 | % | 38 | |
Category 2 | | 370 | | 0.4 | % | 19 | |
Category 3 | | 201 | | 0.2 | % | 17 | |
Category 4 | | 25 | | — | | 12 | |
CMC Total | | 1,470 | | 1.3 | % | 86 | |
| | | | | | | |
Other below investment grade risk | | 39 | | — | | 76 | |
Total | | $ | 115,611 | | 100.0 | % | | |
| | December 31, 2005 | |
Description | | Net Par
Outstanding | | % | | Number of
Credits in
Category | |
Fundamentally sound risk | | $ | 100,951 | | 98.6 | % | | |
| | | | | | | |
Closely monitored credits: | | | | | | | |
Category 1 | | 872 | | 0.9 | % | 36 | |
Category 2 | | 433 | | 0.4 | % | 22 | |
Category 3 | | 131 | | 0.1 | % | 15 | |
Category 4 | | 23 | | — | | 11 | |
CMC Total | | 1,459 | | 1.4 | % | 84 | |
| | | | | | | |
Other below investment grade risk | | 55 | | — | | 103 | |
Total | | $ | 102,465 | | 100.0 | % | | |
(1) Our surveillance department is responsible for monitoring our portfolio of credits and maintains a list of closely monitored credits. The closely monitored credits are divided into four categories: Category 1 (low priority; fundamentally sound, greater than normal risk); Category 2 (medium priority; weakening credit profile, may result in loss); Category 3 (high priority; claim/default probable, case reserve established); Category 4 (claim paid, case reserve established for future payments). The closely monitored credits include all below investment grade (BIG) exposures where there is a material amount of exposure (generally greater than $10.0 million) or a material risk of the Company incurring a loss greater than $0.5 million. The closely monitored credits also include investment grade (IG) risks where credit quality is deteriorating and where, in the view of the Company, there is significant potential that the risk quality will fall below investment grade.
18
Assured Guaranty Ltd.
Largest Exposures by Sector (Part 1 of 2)
as of June 30, 2006
(dollars in millions)
10 Largest U.S. Public Finance Exposures
| | Net Par | | | |
Revenue Source | | Outstanding(2) | | Rating(1) | |
California State General Obligation & Leases | | $ | 884 | | A | |
New Jersey State General Obligation & Leases | | 760 | | AA- | |
New York City General Obligation | | 694 | | A+ | |
Chicago Illinois General Obligation | | 685 | | A+ | |
Long Island Power Authority | | 683 | | A- | |
Denver Colorado Airport System | | 620 | | A | |
Jefferson County Alabama Sewer | | 578 | | A | |
New York City Municipal Water Finance Authority | | 570 | | AA | |
Massachusetts State General Obligation & Bay Transportation | | 561 | | AA- | |
Houston Texas Water & Sewer System | | 548 | | A+ | |
Total top 10 public finance exposures | | $ | 6,582 | | | |
10 Largest U.S. Structured Finance Exposures
| | Net Par | | | |
Revenue Source | | Outstanding(2) | | Rating(1) | |
Structured Finance Corporate Pool | | $ | 914 | | AAA | |
Synthetic CDO - IG Corporate | | 740 | | AAA | |
Sandelman Finance 2006-1 Limited | | 722 | | AA | |
Field Point III & IV, Limited | | 650 | | AA- | |
Countrywide Home Equity Loan Trust 2005-J CL 1-A | | 639 | | BBB- | |
Countrywide Home Equity Loan Trust 2005-J CL 2-A | | 637 | | BBB- | |
Park Place 2004-MHQ1 Class A-1 | | 595 | | AAA | |
Synthetic CDO - IG ABS | | 594 | | AAA | |
Private - CLO | | 546 | | AAA | |
Private - Mortgage Backed Transaction | | 500 | | A | |
Total top 10 structured finance exposures | | $ | 6,537 | | | |
(1) Assured Guaranty internal rating. Our scale is comparable to that of the nationally recognized rating agencies.
(2) Excludes net par in force for transactions insured by a AAA monoline financial guaranty company.
19
Assured Guaranty Ltd.
Largest Exposures by Sector (Part 2 of 2)
as of June 30, 2006
(dollars in millions)
10 Largest Healthcare Exposures
| | Net Par | | | | | |
Revenue Source | | Outstanding(2) | | Rating(1) | | State | |
Ascension Health Credit Group | | $ | 148 | | AA | | MO | |
Texas Health Resources | | 147 | | A+ | | TX | |
Catholic Healthcare West | | 137 | | A- | | CA | |
Catholic Healthcare Partners | | 137 | | AA- | | OH | |
Sutter Health Obligated Group | | 117 | | AA- | | CA | |
Medstar Health Inc. | | 110 | | BBB | | MD | |
St. Barnabas Health Care System | | 108 | | BBB | | NJ | |
Methodist Hospital | | 102 | | A+ | | TX | |
Christus Health System | | 100 | | A+ | | TX | |
Adventist / Sunbelt Health System | | 99 | | A+ | | FL | |
Total top 10 healthcare exposures | | $ | 1,206 | | | | | |
10 Largest International Exposures
| | Net Par | | | | | |
Revenue Source | | Outstanding(2) | | Rating(1) | | | |
Graphite Mortgages PLC Provide Graphite 2005-2 | | $ | 1,163 | | AAA | | | |
Stichting Profile Securitisation I | | 636 | | AAA | | | |
Synthetic CDO - IG ABS | | 602 | | AAA | | | |
Northumbrian Water PLC | | 568 | | BBB+ | | | |
Synthetic CDO - IG Corporate | | 500 | | AAA | | | |
Ballantyne Re PLC Class A-2 Floating Rate Notes | | 500 | | A- | | | |
Private - CLO | | 444 | | AAA | | | |
Orkney Re II, PLC Floating Rate Notes | | 423 | | A- | | | |
National Grid Group PLC | | 420 | | A | | | |
Private - Whole Business Securitization | | 276 | | BBB+ | | | |
Total top 10 international exposures | | $ | 5,532 | | | | | |
(1) Assured Guaranty internal rating. Our scale is comparable to that of the nationally recognized rating agencies.
(2) Excludes net par in force for transactions insured by a AAA monoline financial guaranty company.
20
Assured Guaranty Ltd.
Consolidated Capital and Claims Paying Resources
(dollars in millions)
| | As of June 30, 2006 | | As of December 31, 2005 | |
| | AGC | | AG Re(1) | | Consolidated | | AGC | | AG Re(1) | | Consolidated | |
| | | | | | | | | | | | | |
Statutory surplus and reserves | | | | | | | | | | | | | |
Unearned premium reserve(2) | | $ | 252 | | $ | 402 | | $ | 654 | | $ | 234 | | $ | 356 | | $ | 590 | |
Contingency reserve | | 602 | | — | | 602 | | 559 | | — | | 559 | |
Policyholders’ surplus | | 276 | | 703 | | 979 | | 296 | | 691 | | 987 | |
Loss & loss adjustment expense reserves(3) | | 17 | | 22 | | 39 | | 21 | | 26 | | 47 | |
Total policyholders’ surplus & reserves | | $ | 1,147 | | $ | 1,127 | | $ | 2,274 | | $ | 1,110 | | $ | 1,073 | | $ | 2,182 | |
| | | | | | | | | | | | | |
Claims paying resources | | | | | | | | | | | | | |
Policyholders’ surplus | | $ | 276 | | $ | 703 | | $ | 979 | | $ | 296 | | $ | 691 | | $ | 987 | |
Contingency reserve | | 602 | | — | | 602 | | 559 | | — | | 559 | |
Qualified statutory capital | | 878 | | 703 | | 1,581 | | 855 | | 691 | | 1,545 | |
| | | | | | | | | | | | | |
Unearned premium reserve(2) | | 252 | | 402 | | 654 | | 234 | | 356 | | 590 | |
Loss & loss adjustment expense reserves(3) | | 17 | | 22 | | 39 | | 21 | | 26 | | 47 | |
Total policyholders’ surplus & reserves | | 1,147 | | 1,127 | | 2,274 | | 1,110 | | 1,073 | | 2,182 | |
Present value of installment premium(d) | | 288 | | 189 | | 477 | | 254 | | 174 | | 428 | |
Standby line of credit/stop loss | | 455 | | — | | 455 | | 455 | | — | | 455 | |
Total claims paying resources | | $ | 1,890 | | $ | 1,316 | | $ | 3,206 | | $ | 1,819 | | $ | 1,247 | | $ | 3,065 | |
| | | | | | | | | | | | | |
Net par insured outstanding | | $ | 60,594 | | $ | 55,017 | | $ | 115,611 | | $ | 52,659 | | $ | 49,806 | | $ | 102,465 | |
Net debt service outstanding | | $ | 78,250 | | $ | 82,138 | | $ | 160,388 | | $ | 70,769 | | $ | 74,925 | | $ | 145,694 | |
| | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | |
Net par insured to statutory capital | | 69:1 | | 78:1 | | 73:1 | | 62:1 | | 72:1 | | 66:1 | |
Capital ratio(4) | | 89:1 | | 117:1 | | 101:1 | | 83:1 | | 108:1 | | 94:1 | |
Financial resources ratio(5) | | 41:1 | | 62:1 | | 50:1 | | 39:1 | | 60:1 | | 48:1 | |
(1) | AG Re numbers are our estimate of U.S. statutory as the company files Bermuda statutory financial statements. |
| |
(2) | Unearned premium reserve for AG Re is U.S. GAAP based and net of prepaid reinsurance premiums. |
| |
(3) | Loss & loss adjustment reserves for AG Re is U.S. GAAP based and net of reinsurance recoverable and portfolio reserves. |
| |
(4) | Capital ratio is net par and interest insured divided by qualified statutory capital. |
| |
(5) | Financial resources ratio is calculated by dividing net par and interest insured by total claims paying resources. |
| |
Note: | Please refer to endnotes for explanation of non-GAAP financial measures [net present value of estimated future installment premiums in force (d)]. |
21
Assured Guaranty Ltd.
Summary Financial and Statistical Data
(dollars in millions, except per share amounts)
| | | | Year Ended December 31, | |
| | YTD 2006 | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | |
GAAP Summary Income Statement Data | | | | | | | | | | | | | |
Gross premiums written | | $ | 166.9 | | $ | 252.1 | | $ | 190.9 | | $ | 349.2 | | $ | 417.2 | | $ | 442.9 | |
Net earned premiums | | 96.2 | | 198.7 | | 187.9 | | 310.9 | | 247.4 | | 293.5 | |
Net investment income | | 53.5 | | 96.8 | | 94.8 | | 96.3 | | 97.2 | | 99.5 | |
Total expenses | | 59.0 | | 64.9 | | 114.6 | | 266.1 | | 218.8 | | 282.8 | |
Income before provision for income taxes | | 94.5 | | 229.6 | | 233.3 | | 246.2 | | 83.2 | | 110.1 | |
Net income | | 79.4 | | 188.4 | | 182.8 | | 214.5 | | 72.6 | | 63.8 | |
Operating income | | 76.7 | | 190.0 | | 141.1 | | 127.3 | | 115.7 | | 96.1 | |
| | | | | | | | | | | | | |
Net income per diluted share | | $ | 1.06 | | $ | 2.53 | | $ | 2.44 | | $ | 2.86 | | $ | 0.97 | | $ | 0.85 | |
Operating income per diluted share | | $ | 1.03 | | $ | 2.55 | | $ | 1.88 | | $ | 1.70 | | $ | 1.54 | | $ | 1.28 | |
| | | | | | | | | | | | | |
Financial Ratios | | | | | | | | | | | | | |
Loss and LAE ratio | | (7.2 | )% | (35.0 | )% | (17.0 | )% | 46.5 | % | 48.6 | % | 60.5 | % |
Expense ratio | | 60.2 | % | 58.9 | % | 65.4 | % | 37.2 | % | 35.5 | % | 30.6 | % |
Combined ratio | | 53.0 | % | 23.9 | % | 48.4 | % | 83.7 | % | 84.1 | % | 91.1 | % |
GAAP Summary Balance Sheet Data (end of period) | | | | | | | | | | | | | |
Total investments and cash | | $ | 2,269.1 | | $ | 2,256.0 | | $ | 2,157.9 | | $ | 2,222.1 | | $ | 2,061.9 | | $ | 1,710.8 | |
Total assets | | 2,735.4 | | 2,689.1 | | 2,694.0 | | 2,857.9 | | 2,719.9 | | 2,322.1 | |
Unearned premium reserves | | 601.9 | | 537.1 | | 521.3 | | 625.4 | | 613.3 | | 500.3 | |
Loss and LAE reserves | | 114.6 | | 121.2 | | 226.5 | | 522.6 | | 458.8 | | 401.1 | |
Long-term debt | | 197.4 | | 197.3 | | 197.4 | | 75.0 | | 75.0 | | 150.0 | |
Shareholders’ equity | | 1,682.8 | | 1,661.5 | | 1,527.6 | | 1,437.6 | | 1,257.2 | | 1,061.6 | |
Book value per share | | $ | 22.98 | | $ | 22.22 | | $ | 20.19 | | $ | 19.17 | | $ | 16.76 | | $ | 14.15 | |
Other Financial Information | | | | | | | | | | | | | |
Net debt service outstanding (end of period) | | $ | 160,388 | | $ | 145,694 | | $ | 136,120 | | $ | 130,047 | | $ | 124,082 | | $ | 117,909 | |
Net par outstanding (end of period) | | 115,611 | | 102,465 | | 95,592 | | 87,524 | | 80,394 | | 75,249 | |
Gross par outstanding (end of period) | | 116,447 | | 105,258 | | 98,221 | | 90,366 | | 83,067 | | 79,883 | |
| | | | | | | | | | | | | |
Consolidated qualified statutory capital | | 1,581 | | 1,545 | | 1,351 | | 1,216 | | 1,133 | | 1,095 | |
Consolidated policyholders’ surplus & reserves | | 2,274 | | 2,182 | | 1,990 | | 2,238 | | 1,931 | | 1,664 | |
| | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | |
Par insured to statutory capital | | 73:1 | | 66:1 | | 71:1 | | 72:1 | | 71:1 | | 69:1 | |
Capital ratio(1) | | 101:1 | | 94:1 | | 101:1 | | 107:1 | | 110:1 | | 108:1 | |
Financial resources ratio(2) | | 50:1 | | 48:1 | | 51:1 | | 45:1 | | 41:1 | | 52:1 | |
| | | | | | | | | | | | | |
Debt service written: | | | | | | | | | | | | | |
U.S. public finance | | $ | 5,432 | | $ | 13,335 | | $ | 11,943 | | $ | 9,628 | | $ | 12,957 | | $ | 7,304 | |
U.S. structured finance | | 16,290 | | 16,724 | | 15,131 | | 9,718 | | 12,495 | | 11,893 | |
International | | 4,929 | | 5,729 | | 3,897 | | 3,822 | | 2,069 | | 2,125 | |
Total debt service written | | $ | 26,651 | | $ | 35,788 | | $ | 30,970 | | $ | 23,168 | | $ | 27,522 | | $ | 21,321 | |
(1) Capital ratio is net par and interest insured divided by qualified statutory capital.
(2) Financial resources ratio is calculated by dividing net par and interest insured by total claims paying resources.
22
Endnotes related to non-GAAP financial measures discussed in the financial supplement:
(a) Present value of financial guaranty and mortgage guaranty gross 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 installment premiums, on contracts written in the current period, discounted at 6% per year. We believe PVP is a useful measure for management, equity analysts and investors because it permits the evaluation of the value of new business production for Assured Guaranty by taking into account the value of estimated future installment premiums on new contracts underwritten in a reporting period, which GAAP gross premiums written does not adequately measure. Actual future net earned or written premiums may differ from PVP due to factors such as prepayments, amortizations, refundings, contract terminations or defaults that may or may not be influenced by market interest rates, refinancing or refunding activity, pre-payment speeds, policy changes or terminations, credit defaults, or other factors that management cannot control or predict. This measure should not be viewed as a substitute for gross written premiums determined in accordance with GAAP.
(b) Operating income, which is a non-GAAP financial measure, is defined as net income excluding after-tax realized gains (losses) on investments and after-tax unrealized gains (losses) on derivative financial instruments. We believe operating income is a useful measure for management, equity analysts and investors because the presentation of operating income enhances the understanding of our results of operating by highlighting the underlying profitability of our insurance business. We exclude net realized gains (losses) on investments and net unrealized gains (losses) on derivative financial instruments because the amount of these gains (losses) is heavily influenced by, and fluctuates in part according to, market interest rates, credit spreads and other factors that management cannot control or predict. This measure should not be viewed as a substitute for net income determined in accordance with GAAP.
(c) Adjusted book value, which is a non-GAAP financial measure, is defined as shareholders’ equity (book value) plus the after-tax value of the financial guaranty and mortgage guaranty unearned premium reserve net of prepaid reinsurance premiums and deferred acquisition costs plus the net present value of estimated future installment premiums in force, less future ceding commissions, after-tax, discounted at 6%. We believe adjusted book value is a useful measure for management equity analysts and investors because the calculation of adjusted book value permits an evaluation of the net present value of the Company’s in-force premiums and capital base. The premiums described above will be earned in future periods, but may differ materially from the estimated amounts used in determining current adjusted book value due to changes in market interest rates, refinancing or refunding activity, pre-payment speeds, policy changes or terminations, credit defaults, and other factors that management cannot control or predict. This measure should not be viewed as a substitute for book value determined in accordance with GAAP.
(d) Net present value of estimated future installment premiums in force, which is a non-GAAP financial measure, is defined as the present value of estimated future financial guaranty and mortgage guaranty installment premiums from our in-force book of business, net of reinsurance and discounted at 6%. We believe net present value of estimated future installment premiums in force is a useful measure for management, equity analysts and investors because it permits an evaluation of the value of future estimated installment premiums. Estimated future premiums may change from period to period due to changes in par outstanding, maturity or other factors that management cannot control or predict that result from market interest rates, refinancing or refunding activity, pre-payment speeds, policy changes or terminations, credit defaults, or other factors. There is no comparable GAAP financial measure.
For adjusted book value, net present value of estimated future installment premiums in force and present value of financial guaranty and mortgage guaranty gross written premiums or PVP we use 6% as the present value discount rate because it is the approximate taxable equivalent yield on our investment portfolio for the periods presented.
| | Contacts: |
| | |
| | Equity investors and media |
| | Sabra Purtill |
| | Managing Director, Investor Relations |
| | (212) 408-6044 |
| | spurtill@assuredguaranty.com |
| | |
| | Chris McNamee |
| | Assistant Vice President, Investor Relations |
| | (212) 261-5509 |
| | cmcnamee@assuredguaranty.com |
| | |
| | Fixed income investors |
| | Patrick Early |
| | Director, Fixed Income Investor Relations |
| | (212) 408 6043 |
| | pearly@assuredguaranty.com |
Assured Guaranty Ltd. | | |
30 Woodbourne Avenue | | Michael Walker |
Hamilton HM 08 | | Director, Fixed Income Investor Relations |
Bermuda | | (212) 261-5575 |
www.assuredguaranty.com | | mwalker@assuredguaranty.com |
