AGO - Earnings call transcript Q1 2021

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Operator

Good morning and welcome to the Assured Guaranty Ltd.

First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. ahead. go Please

Robert Tucker

statements affect reserves, of thank statements our events. loss And other Today's for results Assured credit subject by presentation our conditions, to future Harbor due financial update joining These not Therefore, place is Act market future may ratings, Litigation financial Thank, XXXX. outlooks, undue our of quarter you them items new new XXXX results. for required undertake The not law. provisions or Safe reliance to the first pursuant or do any contain are should or call. spreads, publicly Private change financial them, Guaranty to Securities made Reform forward-looking revise on operator. as that may to all information we the about results obligation credit presentation as you and conference business except

our with financial includes the financial between which supplement non-GAAP reconciliation the and to are We at call. risk filings, this made also measures measures of presentations call, have for current measures non-GAAP If on to our website this statements to a comparable factors. updated you and today of transcript listening investor Information Investor referenced SEC the recent This financial references please along refer that our our and call, measures. most this since for non-GAAP the presentation, presentation, and a current the filings been financial to our financial assuredguaranty.com. directly and presentation such reading most are note replay you are Please present the financial may most in equity if GAAP website section GAAP or of

After of presentation, the are the remarks, Frederico, questions. Executive our Chief call to and will Chief Bailenson, our and Officer Guaranty to Ltd., your Rob speakers Financial their Dominic Assured we Officer. Turning President open today

the to enabled question. call dial not now over to for if you Q&A, will is like into Dominic. ask a please would call I webcast the As the turn

Dominic Frederico

welcome And public year's all Assured challenging quarter reached I'm at value shareholder than Robert. new measures Guaranty first last Key XXXX, adjusted $XX continued share quarter-end program. we in benefit say well. highs first since AGM adjusted Driven quarter the for guarantee operating million XXXX. as financial recognized $XX.XX capital more XX% call. last successful provides which since US XXXX, you, everyone per in further first acquired new finance in our $XXX.XX to book we was the from that our that continue times, also PVP to value but and today's our of of share management by joining of in highest equity generated proposition and business PVP, year to Thank as production pleased above in value we one quarter quarter per shareholders' first for

operating $X.XX first share XXXX. adjusted the XX% in than higher Additionally, per of was income quarter of

first billion, organic market the Par than significantly The the insured and first Recession, our which our portfolio volumes business. industry our growth US sign insured outperforming in $XXX.X net the quarter of an record related a par our increase, portfolio our positive Great restore in the billion, earnings Strong of consecutive of issuance. total neared base first insured sold level bond municipal $X.X outstanding for in during than volume. first quarter in insured increase year its bond transactions. for new fundamental more X.X% and quarterly predictable quarter The and XXXX in since saw insured XX% of was core originate full continue year's XXXX. bond of we US this size insurance is to par of in trend which as expect and penetration higher XXXX last strong led a very the size is first future we demonstrating the highest primary par the to than of X.X% first year embedded the reached first the in since three demand total penetration XX% market XX-year see sold quarter, municipal every was This diminishes our the generally municipal to quarter upward business. rate months to rate fourth The of efforts XXXX. in rate We annual insurance runoff higher quarter setting quarter for

quarter. its share issue lead Assured Guaranty in market new first widened during the

XXX But comparison, in share primary XXXX. of up quarterly since The may sold Our insured last in in par was quarter insured fourth be first since related with par issue comparisons higher quarter count new our the what influenced first was than in first quarter in the more better our municipal was insured share in year-over-year of the of our $X.X And highest quarter The quarter a XXXX. sold insurance any transaction XXXX. the XX% quarter. insured disruption were quarter we market almost sold pandemic XXXX. by XX% than XX%. market market meaningful first our par in of of X.X was year's was par times amount almost any billion our It

more During eight leadership attract $XXX our million this category to institutional for investors. transactions tend growing totaling reflects Large on we billion. insured quarter, transactions or in this in institutional appetite year's insurance insured And with Assured par Guaranty's first a market. $X.XX different aggregate the

on XX the transactions Guaranty's in any Assured we reserve first we that which international one In economic insure a AA for liquidity, to bonds. $X.X have it recovering a about in exposure. transaction high ratings created of provide the at quarter our of been new quarter, during of than AA risk behind to extra guarantee stable these downgrade par about investors market good our service address. the billion of quality value concerns [indiscernible] risk, overall international shown have revenues, ratings an global the with to was of that infrastructure trading combined appreciation leading persistence of our value potential The the what believe proposition stability Water have and neither own Welsh transactions, there expected guaranty unpredictability We has substitute least facilities. debt which for bank underlying two level finance on as in outlooks One those better Even rating has of ability the comfort investors two by pandemic remain were an to the first of executed taught XXXX municipal as an concerned the and economy reason extension and the signs liquidity agencies. provided

with The a a that obligation other sub-sovereign. project insured years direct we financing converting involved ago of a convention center

progress in of we $XX quarter. Additionally, the important second new international made already since transactions, of two million which on PVP have generating over quarter-end, closed

that. number a successful, a significant projects, believe be delayed part governments' in had the pandemic creating stimulus effect spreads the to financing efforts will for credit have amount and While to that us. will of the to fully also provide other We of and we of widening therefore UK through play it a require private investment opportunities and infrastructure

a increased of robust been have receiving inquiries. variety business infrastructure new and an pipeline We opportunities, of have potential

we've investor relationships. and efforts expand appetite product also continued to our our our in markets, remains We believe and for maintain international strong our

types finance and various can with area guaranteed be well. structured international can to collaborating other associated portfolios, infrastructure this the is We as transactions. applied portfolio using believe optimize on are Our principles groups help we asset institutions an underwriting capital their that

including the rail Additionally, processing insurance, is in structured potential equity finance CLOs, trade diverse assets, receivables, life for for private group and equipment finance discussions leases, in currently categories, subscription or funds. transactions facilities

net big to par approach just of writing loss been Puerto About and disciplined stability, mitigation to considerable Rico out our new business, financial Rico. strength news outstanding. portfolio investment insured Importantly, of grade has reduce of half diversified percentage to the to and Puerto have activities, our to our exposures along and relates X.X% there our obligors below helped and our positive with of

parties to creditors in a our Plan conditionally documentation for with more related make a GO Oversight to the Agreement insured Puerto of comprehensive CCDA towards the the that Agreement. credits, the our principle As understanding Rico I a and HTA/CCDA part and Board exposures are place such government Convention Public of addressed a and known also and so and including as step credits, took with we that bonds the Authority. in as of did of Support work the Authority revised and solution revenue Buildings February Highway clawback Authority, such resolution with support credits, others settling XX us we, Support big board Center oversight call, on the A other to subject when agreement Plan express to Commonwealth mentioned to We April definitive agreed that agreed on the last HTA PBA. would District an Transportation framework and the what

have XX% plan the have all approved PREPA exposure. We these interest the for $XXX not to only Puerto that over Rico or and any of have of incorporating net as of agreed that these RSA million our par and It X, until GO/PBA relates But principal implemented. May exposure, Outside finalized to support agreements, our which adjustment announced par we PSAs Puerto have months the now reaffirmed Rico still these almost on has terms will and settlements, the net be documentation with of company on payments. PSA. additional credits of missed are

package specifically claims potential on further our that of the indicated ultimate bond stimulus first reserves federal a especially the we us COVID-XX. do first and any that in losses once pandemic enacted arise from $X.X insurance And of to review impact not has significantly municipal the we reassessed quarter. trillion that during time not from the Lastly, light establish given COVID-XX portfolio, again, loss reason expect insured

total records CLO in setting financial blossomed made to billion we a reissues Europe. the first the refis, with management guarantee business. of quarter billion €XX issues, new progress $XXX.X in In business, United addition the asset resets The having the supply, market during including quarterly States and in quarter in great good and

those CLO of period. each during markets AssuredIM the in issued one

and our CLO extended $XX.X quarter from AUM total billion. $X.X We for management of which business is of – those its to we Directors opened focused and outlook Michelle its billion $X.X management, CLO this to CLO three more fees $X.X experience We also positive. raising billion their as They sold like earning three billion value almost reset reduced And and third-party capital. backgrounds the new Courtney AUM from $XX to for CLO to our first Lorin off opportunity million and finance, I McCloskey, while take were than and wealth non-fee life, on Board's be total structured making. therefore We leaders fees. legacy Board quarter. would welcome remained finance earlier, this of warehouses equity year's insights investment our great the to recently bring of to our increasing more directors funds. last a three double strategic Shea. public The varied decision months in by and will CLO Radtke CLO

Looking and rates ETFs the took expect borrow likely of as and inflows likely towards the development of municipal in are of to be the well believe the capital municipal to while for bonds, low. the billion bond infrastructure their needs We the for exemplified raise that in Washington, we $XX during demand met to quarter. as strong benefit funds investor to from rest come amplify municipal first by approximate high for by year, to interest more demand bonds by issuers' mutual funding desire refinance remain infrastructure order

worth to potential tax wary bonds, increases. long-term alternative safer become mix municipals investors rise, for of attractive may an conditions with public net As especially high finance small. will large and We us provide of this many believe corporate opportunities, and long-term yields market

seen the quarter-end structured around As already international pickup and since finance revive finance in transactions our to some the business, have a complete year financial activities world, guaranty we progresses. large expect as we

challenges the have business. the growth the through of We've see management employees dedication of more XX of a this We made our lot and past will significant and been in you guarantees. believe our the aware in our asset financial benefits of also months. even the the business professionalism of market model, resilience period believe We our

now their as as turn As our clients are financial to for strength. on behalf over to will our value and of always, place our shareholders, who credit investors the well committed we in discipline call and Rob. trust creating the I

Robert Bailenson

management. and And – Thank morning assets PVP start like metrics good you, call. third-party by on I production business everyone to Dominic. our highlighting for new two of to the under inflows key would

mentioned, premium component Dominic future first our approximately primarily driven us first end over results quarters our $XX.X US $XX since strongest XX% PVP In finance our XXXX PVP. deferred last XXXX. quarter the storehouse our of the at quarter several helped our $XX.X first earnings was of revenues, As largest Management first public was AUM Strong million billion by quarter and helped PVP the $XXX maintain issuance, the increase premium billion quarter have or the segment, fee to since which from earning million third-party in to billion. inflows total of XXXX $X.X Asset by of CLO was

quarter earned In per $X.XX compared terms share $XX million first XXXX. income, of the with share $X.XX $XX million quarter or of in we of or adjusted operating in per first the XXXX

to quarter first write-off attributable was represents subsidiary York XXXX include Municipal this to until insurance year-over-year, one-time Assurance licenses merged of increase into that million insurance X, New an Municipal insurance after-tax results or a Guaranty our April muni-only want it asset MAC, a While XX% on US the of AGM, intangible $XX I Corp. larger XXXX. subsidiary, Corp, Assured or our highlight we our MAC

adjusted adjusted and would XXXX. legal is future structure, in quarter been $XX of The the of income insurance income contribution statutory maintaining capital over income years. representing compared The restructuring have simplifies first regulatory and over operating $XX remaining the net expected few paying write-off, $XX an with investment segment's was additional our to an first quarter first next capacity this organizational the first cost XXXX. increase increase Excluding million, and quarter million of the eliminates quarter of million entity, XX% subsidiaries to Insurance US the dividend operating XXXX

have increase an Excluding been the would MAC million million. $XX license $X or write-off, of income adjusted operating

generates Within equity by from the the investment its and total from under XX%. segment, from income fixed equity investment alternative method. portfolio net $XX portfolio in million portfolio investment Insurance income or carried investees increased from maturity The investments earnings the

mitigation AssuredIM loss third Funds Equity XXXX average our include for maturity fixed of by which with share generated CLOs other alternative from managed the first several due XXXX declined a funds, decrease quarter XXXX. $XX subsidiaries in interest paid portfolio, of managed the first quarter portfolio, Our the maturity in investments first net $X of parties, and XXXX. to was income balances XXXX. income generating gains primarily of primarily investment primarily in rates income then lower $XX earnings to million and parties. and account a with largest of and investments, the in quarter Alternative investments securities. in for insurance AGL repurchases, externally portion asset-based investment investees due that the gain net by investment the the The first short-term million in by AssuredIM first loss in Funds, million The compared $XX fixed quarter short-term of million generated third used million quarter lower compared of managed $XX were dividends in lower

movements therefore, period net to reminder, investees Funds, the on a the than income portfolio equity to maturity more from volatile will is fixed mark-to-market earnings fluctuate AssuredIM and the of attributable in period. function a As and investment

As we fixed into investments, net investment shift assets decline. may long-term our the these maturity current alternative income related

Structured consistent portfolio. long premiums Scheduled on the portfolio returns year-over-year new the maturity offset recent returns be decline fixed on the However, investment net XX%, were earnings transactions. to over over on enhanced at business the term, – million the weren't Finance production the we which as in consistent exceeds expect substantially alternative earned $XXX

in $XX XXXX quarter in million was with XXXX $XX XXXX. million Loss first XXXX. the first refundings quarter million with expense quarter resulted of million first compared in quarter accelerations compared $XX First in $XX

on loss finance, Rico, RMBS quarter includes XXXX both as well First as public US Puerto particularly expense exposures.

on XXXX, US XXXX of development $XX quarter quarter of Rico part of primarily on RMBS, was offset loss of Net first on loss First RMBS, Puerto to by mainly economic expenses and discount first quarter by attributable for charged-off transactions a change expenses, large in certain excess US the changes benefits increase due consisted million discount consists transactions. $XX million loss to spread mainly spread. which in to benefit of $XX second lien a million and all loans in benefit in economic development was development performance recoveries lower excess rates rates offset attributable XXXX. in previously improved The to for due in

volatility which Puerto of net PREPA losses expected Rico grade net investment Our in below future our outstanding reduce par represent should of the XXXX reserves. of the as addition of or reflect, these over first to outstanding. our this reached quarter XX% previous significantly XX% terms week, These of Puerto scenarios, our Rico total par agreements, agreement, in agreement settlement the also

the of a loss Turning Asset of a was Management first $X compared million in segment. income XXXX. XXXX $X to first million in Adjusted operating quarter quarter with loss the

Our long-term acquisition is AssuredIM, of view we have great progress optimistic. of segment strategic our made the goals. advancing Asset in Management Since the

have million core the operating funds; CLOs in CLO and as quarter decline of for funds, management the first compared division on we CLO interest for debt, fee Corporate Board in established than $XX was and the from CLOs strategies after XXXX. of from Corporate loss achieved the opportunities mainly in new a capital pick XXXX XXXX. fees the on division other as offset with first attractive expenses. of in sale Directors the funds corporate quarter Adjusted the fees well and more in the have acquisition. earnings, million $XX our up increase raised holding expense of our funds consists wind-down AUM returns equity US as XXXX, difficult The momentum issuance first strategies since quarter through assets liquid opportunity the increased funds, in and from In We liquidated wind-down of new legacy company's

charge fluctuate an impairment a extinguishment adjusted basis, related XXXX loss income the investment quarter from the different of On the effective based period debt. tax proportion to in quarter income jurisdictions. a of consolidated on tax may included First effective on XXXX, and in operating rate XXXX. with first the the tax rate was to XX.X% period first compared XX% quarter In losses

XXXX, Turning available the to of holding adjusted either resides companies or repurchase or pursuit $XXX the record to million, the the of $XX in to $XXX are you we of shares additional the an approximately million. the we From I'll period. and to our resulting per our have January equity for our funds program in expand of which share. $XX million to highs helped initiatives management an to $XX adjusted use repurchased These beginning for Since of cumulative repurchases continued million total have and of quarter of adjusted Thank average we capital repurchase and the then, $X.X for business investments XXXX, per in you. drive give approximately capital. outstanding. a AGL. over call needs operating these cash shares of metrics over in liquidity new price The effect our operator first shares these XX% book $XX manage of currently in million in $XX reduction the book share. standpoint, $XX instructions returned in strategy, for shareholders, strategic equity for billion liquidity repurchased and Q&A adjusted to operating was share, a $XX.XX shares in value at our shareholders X program value over which XXX,XXX of million the Since now in per turn shareholders' in benefit

Operator

Instructions]. [Operator

first Tommy with The comes question KBW. McJoynt from

Thomas McJoynt-Griffith

HTA signing yesterday. of the the on Congrats agreement

terms to of ask So that I the about HTA wanted agreement.

instrument upfront you instrument. bonds? bond what the on your upfront on you XX% would clawback and and recovery share cash the your expectations think beyond then, add the cash to and CVI Could CVI First, guys

Dominic Frederico

a target. CVI of The like is kind moving

look be economic there's number factor, to the that is got the two in you second got that what growth then in make like; factor an to and So, principle, rate. trying on economy, to the growth the whatever assumptions continued is predicated to you've in and discount thing at is you've the tax can and amount, so pick going sales you really

bit finalization of the this to instrument a agreement, if is you there going be And also to question valuation it closer gives get whether principle. little will the we better As the trades, trade. that

try growth then based really, analysis. you've discount in out map got our our requirements, it's we GAAP probably So, on scenario Remember, in scenarios, to rates economy the picking and our scenarios says to still of which weight and reserves evaluate them. as are

settlement, make growth make plus in our and also of the but economic got model. really rates for to changed scenarios it the settlement, there's worse. on to that model more reserve reserve an flows, the the change discount obviously that scenario the can't So, in assumption the relative work discount HTA, one one assumptions it model, rate scenarios and better. the we the We cash make of And course, than growth the scenario you've includes

So, there of there. a is lot moving parts

year, we're along further the instruments time, that. comfortable, time point assumptions, get course, not in more there'll more of but doing we As whether our disclose start of this at And in the be trade. to to at we'll ready the clarity we're relative and

Thomas McJoynt-Griffith

Now available? in Rico, of about of progress when discuss any able could thoughts of business than could some that? be on you'd are level on the what a your opportunities, consolidating structure think operating an that run-off think rest it capital you at And the Obviously, we good company the use thoughts there. books using have opco level the whether lot trapped remaining latest Any at to level, capital we the so made transactions your those interest rather of on you holdco level? there's of be efficient capital at there Puerto

Dominic Frederico

me that us. in answer Let order them you gave the

do of our we'll for remaining terms the competition change is hurdles, some clears Valuation parties basically conditions. of Acceptance return yes. is the hurdles. probably third see It consolidation? one door right. that answer there still portfolio, What But So, other whether of up the number kind more this does open one, from the and one. And assumption. like we are in

long was? one to this of go a again of is should but way remaining that hurdle exposure. there of remind So, factors, number two, what hurdles remaining clear the the Question Rico a Puerto clearing does or me lot

Thomas McJoynt-Griffith

could capital whether Just at at than rather operating structure company you the anything level using holdco?

Dominic Frederico

is trapped the because can, use, we that the in makes operating capital to goal every companies sense. Our from obviously case most

aware, holding at us of management. the flexibility a a to of lot capital our capital company free well gives for purposes, multitude including you're As dedication

So will where use operating operating – capital we existing trapped income operating in possible, companies. definitely existing the that's

Thomas McJoynt-Griffith

if rank And you just perhaps you and growing business, and capital it your to management the sum order can kind rank how run-off up, between allocation of businesses the interest in terms buybacks of would asset consolidating those?

Dominic Frederico

at I it's retire got do think management it's I'd return. capital most. day, still us to which most that end because stock. the the attractive you of children Well, the the at we biggest continue like opportunity trade of the spectacular the still we is at Where the discounts like to three for of your just say But is are

Operator

from with comes question next UBS. The Meredith Brian

Brian Meredith

then here Congrats is, on get Dominic agreement on Rob, to to question MAC special up free go does as the court dividend of everything. do I or at an guess finalization or in And see one we capacity? all dividend? one, consolidation that, add any order to my court two, need kind a big the and

Robert Bailenson

are going now income taking was our By increase companies out consolidating investment part to main first AGM, the MAC. you operating subsidiaries. and with underneath insurance and trapped capital our two that that merging take that at within I'll

significantly dividend our it how capacity out this rules will it year our increase modestly do capacity, and to could different New Maryland Brian. year regarding expect there increase but are much between York, you dividend dividend and because we So, more next

Brian Meredith

want get you a before go final Puerto asking one? now until you a that? from to you're think point you special would Just you ask with can respect do on at the wait dividend, agreement Rico that for regulators courts the to you Do

Dominic Frederico

Well, let's go through the facts.

we a Puerto two get we one to and can management still considered, capital number or target need had course, we've believe transaction Number factual get of capital special special COVID typical Rico. our two, dividend. or dividend is management, being to Number of to to the even is, some do. we granted accretive impediments most So, request a three, and,

through we be conversation it regulators that environment those As to held resolve were going with I the create is does this where that responsible year, too. an think

Operator

comes next Dunn question & from with Geoffrey Dowling The Partners.

Geoffrey Dunn

transport deals into new both agreements, the that past recovers? bond GO am here, unlike I considerations With well is as ultimate CCDA bond the to the that CVIs? we is recovery the insurer as right factoring PBA no be estimate and HTA solely the respect other the should There

Dominic Frederico

you're But is cash cash. Remember little out called piece, which is one leaving king.

of So, is settlements. the at there the component end day, cash a to these

value Now, I bonds, wrapping think higher fully them. get opportunities basically all. And is considered you what this from you're by that in settlement that the we to not a have make referring to at better at the point time, we've

on estimates of everyone to available to place actually allowing the and recoveries just to we're current based that's the what's take in at the So, documents settlement read.

Geoffrey Dunn

your not, this are publicly the don't us know fall? but bonds where deal to in able or available recovery of you Within narrow help is I down if that GOs, the – down, narrow range information

Dominic Frederico

not idea. out, have figure Obviously, we easy right. to a good that That's

don't Remember, We disclosed. lot published all not bond to in of the include or not the ability obviously have secured reports. with the include creditors, been the we They It's problem seeing see of some CVI publicly statistics creditors. just the is that. holders have you're they a

convince and with I bonds have and to – new much now at the for and new at do Puerto of bonds. want Rican kind debt view, I've the ignoring So, I I'm so some cash and bonds look where they're cash you if out. I they and government from to tell they're bonds, debt old only said falls comparing or people who new the in much looking cases, CVI got at Because of and just requirements, debt point looking have so bonds new

So, the numbers do substantially move about.

we're rates. our As what of think believe market indication and a should said, I we've very comfortable good give the recovery we pretty with is that the settlements

Operator

to like the to This Robert concludes turn conference the remarks. I now question-and-answer for Tucker closing would back over session.

Robert Tucker

on thank you, And call. operator. I'd us everyone like to for joining Thank today's

give have feel additional questions, you If to Thank much. you free call. very please us a

Operator

This concludes call. attending. for today's all Thank conference you

a disconnect You Have lines. may great now day. your

Assured Guaranty (AGO) 7 May 212021 Q1 Earnings call transcript