AGO - Earnings call transcript Q2 2022

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Operator

Good morning, and welcome to the Assured Guaranty Ltd.

Second Quarter 2022 Earnings Conference Call. My name is Danielle and I will be the operator for today’s call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. ahead. go Please

Robert Tucker

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

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

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

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

Dominic Frederico

welcome call. per Thank $XX.XX equity highest Guaranty’s today’s during were and and book our levels value adjusted at the you, mark Robert XXXX, in to the and $XXX.XX halfway earnings Assured operating adjusted shareholders’ share per of our share At respectively. history,

quarter insurance half interest market results by raise Rob XXXX inflation and volatility, but extreme business action year’s increasing first how perform that rate the pleased Second and in say our affected to shifting to of were environment core continues financial to extremely well marked I rapidly our – will volatile interest Fed market rates. markets. cover am this

has production years’ and business recent consistent results. New excellent with strong been

finance, PVP $XXX sources finance. half were infrastructure totaled and U.S. structured across international First and diversified XXXX it million, public global

any first it and In half in $XXX that In of only year sold terms have we than transactions first half PVP, our third large Xx million years $XXX been second with easily PVP best was more U.S. produced the direct during of direct finance PVP, making of first year’s same we’ve million period last exceeded milestone. the this public X out again to of the of last quarter. direct inclusion closed second or of the production half the first half one quarter the of year’s in would that that

year. benchmark a alone second was for the of increase a and June XXXX, quarter spreads XX credit yield So higher start X.XX% of XX-year lesser in AAA bonds GO yield the a XX bond trended The of widened, than in the double the and first more extent. half yields basis at the to also reflected municipal point though

were – and unusually However, volatile. eventually yields spreads were

volume out dominated in rates refunding, also market causing taxable interest pushed decline. on advance volumes modestly New par refundings overall to issues volume including market potential the rising rose the and money with money, of

We demand our continue compared pre-pandemic insurance bond levels. to see high for with

use half potential bond XXXX, higher of awareness first investor larger important safety insured in recognizing offer number X.X% half XXXX’s factors the insurance, and wider bond a than penetration X.X% significantly First that We of amplify a to of economic the higher have with consequences of than and cost-effectiveness insurance and was helped the first the of two the half. conditions the of issuers believe volatile many XXXX insurance. X.X% in

exceeded record at XX%. of $XX billion primary issues for a the insured XXX billion share Assured’s market new $XX.X secondary insured written municipal insured bond market XXXX half secondary billion. half first the sold in $X.X first par We with at almost par said total We For combined XX-year and primary of of guarantee market par sold. and

our gross Our for financial par on market to was market during and to transactions or guaranteed relative deals We the stability this provide. each. guarantee the also reflect our this of years. our insurance in half significant prime price municipal $XXX written and highest size the first increased believe strength closed liquidity XX direct transactions of we institutional the million can par XX Contributing U.S. due demand insurance where more of were

quarter second our $X.X par market was X.X%. insurance the sold secondary quarter, was billion, par. Total penetration totaled billion insurance $X.X for at of Looking which the

XX%. Our over market bond insurance share was

Power Transportation and the quarter to included sold closed $XXX each. New issue, end Guaranty These Alameda Assured PVP a in has seen Corridor large quarter and million a also million entirely million transactions an after issue, for $XXX that the over guaranteed of utilized our contributed our which third start the we’ve wrapped quarter Authority York $XXX by insurance strong of Authority portion We XX results.

quarter first the the we across guarantee, strength PVP. to more add AA half and $XX on since began, credits. of our PVP already in we investors our signed million. value written than Remember, third our million continue $XXX of recognize company the as week have fact, In was total And

million or secondary This included market XX policies on in Moody’s we and S&P For par primary of of XXXX, par AA the the both. market. sold Public $XX billion an first In in sold Finance quarter. for second insured in deals International first half produced $X.X which bonds or we XXXX, market of $XXX during billion on second million the including $X.X the of XX of in wrote quarter, $XX of rated half category May, investor. institutional approximately secondary a guarantee million by PVP the secondary the insured large through was

continue to a asset-backed in third number potential investors bank quarter. as life clients XXXX. significant includes of market the very opportunities funds second have pipeline such an of I in In widening. consider Our the many our and with important start a We And we second see direct facility said Global opportunities The to we potential potential finding Structured finance with remains close about and spread area pension current investors. already as other opportunities subscription looks previously, are sector. recent and work international the the finance that created good public see fund new by of transactions speaking banks, transactions likely CLO strong of we we during a to focus insurers, closed with counterparties the guarantee lenders, quarter CLO seen in for Finance, and

insured importantly, continues our to More improve. portfolio quality

we decreased billion months X GO credits the first by extinguished During billion a par, $X our including investment-grade almost Commonwealth’s of to of of of as this exposure PBA below Rico adjustment. $X.X of the the result year, plan exposure Puerto

plus now X.X% portfolio. billion new part exposure totaling our PBA last $X.X BIG of adjustment, bonds approximately of insured value Our only I the and we call, GO par represents received instruments. mentioned GO additional our of On Commonwealth’s as plan cash contingent

set received we million continued Support PBA addition, of $XXX of and in hearing cash $XXX the to plan notional In August for pursuant has instrument. Commonwealth Transportation HTA Plan in and the and concerning revenue July, million the Highways adjustment, the from confirmation adjustment terms bonds, plan The Commonwealth of XX of HTA Agreement, of value XX. Authority GO the been

rating current was plan debt unresolved Puerto to is XX. extended strong Rico insurance our for a with On consensual key The recoveries to report mediation financial have receive August insured completing of island’s the capital July is to implemented, view parties quality HTA strength understand of of additional to AA risk Guaranty. expect in the very and improved its of subsidiaries, all that That high quarter. profile annual portfolio excellent Rico. rating, many treatment Assured risk all of our term the confirmed financial for Rico citing S&P’s further S&P restructuring the judge strong has describes and for high-quality Authority fourth rating. the profile in both review Electric XX, we already in complete the resolution our economic our buffer. adequacy Power achieve that companies, This mediation its very Puerto guaranteed adds factor recourse financial and the Puerto AA reasons strength recently progress strengths affirmed financial of Assuming responsible capital exposure. supporting earnings our its revenue including Virtually last the business a our applying pressure meaningful to a the we bonds,

report on read assuredguaranty.com. website, can our You the entire

of during which million billion, by increased approximately assets $XX.X management the to On asset $XXX under second our management XX% now of business, is side the earnings. fee we quarter,

execute held $X.X strategic latest We closing on fund and closed health totaled a for final inflows billion. care oversubscribed other our to and continue Third-party objectives. CLO new an we our

of resiliency environment, company. it’s heightened bond is reflect to the increase our as of often economic pandemic, that and first this in has remind to uncertainty the continue insurance the In investor the year’s investors been maintained, we this volatile. future the proven developments that good year on appetite for saw Given interest

and decades commitments We through investors’ by responsible through management to have risks and risk on against principal disciplined while resilience stewardship cycles our succeeded proving of interest all protect our of delivering capital. economic

since to have for through as net gross share keep Our claims through billion billion recoveries, approximately and at billion XXXX. claim maintain over of those investors returning and billion $XX exceeding numbers billion we same and income hold to of $X resources are claims more and same shareholders the today, than earning buybacks insurance $X adjusted the the Even were period. they operating gross dividends. on payments then, only claim-paying by though, $X mitigating $XX by losses in subsidiaries end reimbursement, reinsurance of aggregate paid We

what our capital resources was of risk. us and of has Our conditions the a measurement market much resources quality use half business XXXX. exposure This at more for leverage incentives to as that our creating every higher to claim-paying and compares are billion of less supports is guarantees. it portfolio insured thrive insured $XX of the insured By resilience positioned financial smaller end than now of

our now turn will never I over our our to better Rob. We shareholders. serve policyholders have the clients, been and protect prepared value call for create to

Rob Bailenson

XXXX, a are second of million $XX quarter The loss quarter morning Thank you, versus good the the investments, $X.XX million instruments, drivers the the in per with $X.XX the million million compared of in second – second second quarter call. to which quarter or In second consists operating of portfolio, share of last the and mark-to-market of Rico the had income $XXX after-tax quarter-over-quarter and in loss a XXXX. that trading on after-tax contingent variance experienced adjusted alternative was Dominic which quarter of $XX on of XXXX. And Puerto share in value $XX movements XXXX everyone gain $XX year. a the or largest per million

fair core strong. Our excluding underwriting adjustments, these remain value results,

corresponding of income these these mentioned nature I to movements adjusted income. that of investments comparisons requires accounting operating due recognition quarter-to-quarter in of in mark-to-market past, are As the the the and volatile

to represents return, for pretax of investment a This is return, most that investments. a IM of diversification into the inception alternative with variance, account which demonstrating $XX funds, value date the our total for our which to However, Assured note million. gain strategy the is line it’s in of XX.X% mark important this targeted

exposure instruments, net Rico our of income adjusted XXXX Any of Rico. these compared development deferred of of of million quarter expense resulted this in insurance value rates, majority the Puerto operating as benefit compared million premium recognized Puerto This as million of now company a benefit assumptions accounted billion premiums total insured RMBS BIG derivative last and economic portfolio part Economic XXXX the as million, the insured of in consisting of we in XXXX received of service economic Puerto credit across and component changes in prior million effect year. of function PBA $XX CVI in benefit $XX our is a instruments. for which manage reduction million the primarily reflection in to $XXX in for was is resulted exposures, U.S. which a in of variance segment same benefit as a with discount losses a included March both instruments of XXXX in portfolio adjusted the were the earned $XX tradable $XXX of second our quarter As exposure million of million, the are quarter adjustments, $XX reflected second change. revenue. the revenues or component and pricing. Rico debt in of the gains in including the in account operating Both loss well increasing GO are which resolution development The in of these of on development the period amortization had premiums with year. of the sectors. all of We second of million current of the $X.X contingent which $XX segment, this income a mark-to-market on $XX market which Insurance $XX for earned refunding the a – was

of portfolio training quarter Insurance were $XX changes In CLO the a million several Net alternative alternative balances. of the funds close The Asset the trading million, second the million in in of net investment value $XX to losses segment, of With mark-to-market $XX investment quarter Fair a movements was to in fair largest for which quarter Puerto result represent period was second on from net the quarter operating lower available on contingent Equity breakeven management driver dilution portfolio single volatility issuance. This the primarily of variance second our income last average the gains and Rico fundraising respect of securities in of sale of segment, the due million. income. operating compared The earnings value quarter-over-quarter of adjusted the and XXXX. the capital asset on Management increased XXXX. had were to on adjusted in of fund. Board values second an from XXXX, of of objectives, $XX investments. million the August the For following brings over income the repurchased of net income quarter we we million shares common Directors X.X losses $XX and close, shares our investment authorization million. and current authorized to these rebalancing second Subsequent On million loss XXXX investments our X, lower quarter for remaining funds XXXX, which components, repurchased $XX second in in portfolio consists income quarter million care the XXX,XXX $XXX with health of funnel the of to $XXX $XXX XXXX. was shares, of a repurchase the million. the for additional value year, the

shares Since $XXX, in returned book beginning have the shares to of along our shareholders, standpoint, $XX AGL. our repurchases, income of of liquidity billion the value the adjusted shareholders’ in $XXX companies initiatives operating with currently have new These expand outstanding. propelled business positive per a million business repurchase share $X.X funds have repurchase to respectively. program manage cash approximately over we to resides in are investments available to reduction liquidity Continued XXXX, and the or total in million, of capital. in holding and records equity either resulting pursuit XX% our new our adjusted production for which strategic needs and $XXX share our operating or use of for From and

resolved the strategies in for business long-term Puerto contingent continue single turn HTA Asset progress the received company’s year, the and the value original we In substantially cash year. progress, notional exposure be end give and rest look we of instruments of production. you. a optimistic environment investment-grade to the more contribute by to Management of As be to In new that segment pending million will over instructions a our settlement. will interest call goals. The conducive continued the below the in you alternative to rate part Q&A towards forward of the insurance operator strategic remain largest will $XXX as its I to asset the Thank sign the Rico, to million $XXX we now period. will July our in

Operator

question We [Operator Instructions] [indiscernible]. first our will take

Your is line open.

Unidentified Analyst

that here. for you debt Hey, And for declines? my go-forward does change what there? service detail kind – good what morning. you of premium more recognition to attributed earned go questions Thanks a expect Could taking a into the in bit on assumptions. I the think mean of you to premiums somewhat

Rob Bailenson

was to – of reallocate have down have it’s and you they life associated you So half have when part refundings of because it that And earned exposure. other extension so decline of to you amount to the which your the a have was – expected that, And CPI are CPI, have in then more you in makes of period with which premium related more you it and index an of exposure transaction, UK. due a over to significant it premium. if slows time, longer then more earn exposure, a

Dominic Frederico

So a time. it just smaller. over it longer doesn’t of make go it makes It period

Unidentified Analyst

pricing Okay, pricing both business your sounds on And the relative Can got in-force well more demand to as talk uncertain considering economic it about new a for wrap remains power then your like perhaps you perspective from it. strong. a outlook? as perhaps book,

Dominic Frederico

calculation a that typically, we as higher. interest go increases. rates you on go up, widen, Well, two, debt to the and becomes quarters as then basis means service Therefore, spreads transaction us by Number get compare that and we more which even of calculate return favorable interest of on basis time relative paid by premium it across service as based transaction paid rates return. We know, up years. percentage a service, get and becomes rate business business ultimate market that on the spread for

market a quarter, the Obviously, it as think hitting volatility could So in fluctuate return. to transaction or that in are the sometimes it’s At that get double-digit given our goal is there us there per because end day, terms basis results. and get might is always for continue amount we to a as lower the our the progresses. target We of the come – in year larger do the on return. better of will we is higher

bit of sticker half The issuance a to the There so first little the relative the shock in has been of has year been volatile. marketplace.

said, As up there a but is side. refunding activity we new is the bit, money on virtually little

last this secondary However, about And creates statistic, we we the think much then point us course, an secondary environment for for transactions. you market narrative as twice better where comparison. in of even secondary as all of and our environment that of win X months market of year the give talked to – business we wrote is a market I

in higher it’s So market, price, return higher the obviously, secondary business.

the business for or reasonable more that that not very drives So ROEs levels complements profitable the reasonable up really primary company. direct to

Rob Bailenson

give in about, Dominic as of the second market, of just secondary talked And PVP. wrote those to numbers million on some you quarter, $XX we

For the was X the that’s billion months. $X.X and and par at par PVP at of million X $XX months, $X.X for billion it quarter over for

Unidentified Analyst

of acceptable that and are numbers. the you CPR you levels excess that perhaps we capital be to lastly, sort think gross rating or at latest Helpful of looking is then calculation leverage what an that par or whether your anything kind currently above of else method a you relevant? is have – agency Good. how remind much Okay. for us And could just

Dominic Frederico

then basis our rating protection Well, maintain important sure to because necessary make own buffer S&P, two, to the has ensure relatively we getting One, the little amortize and capital to internal continues it’s remained to from from models easier X excess look AA it’s capital position rating financially from significant. we relative as our we decreases. therefore right. leverage agencies, The the that continue it and provide portfolio marketplace the remains down, company for bit Obviously, the strong. ratio a us at to

relative is we still are over given strategy. know, will $X number have capital And of as significant capital. of continue market give continue to therefore, situations XXXX amortizes, is majority of kind billion well the which capital evolve, excess the to strategy, billion of only line trying the has portfolio we significant. the circumstances you continues you and we shareholders. Now management And of But continue higher share will a in obviously and excess that’s we to been as XXXX, risk our maintained to number, to after returning as basically part think that buybacks, position $X of management our we level you we capital the is portfolio in remember, position, And capital decline. that up still which evaluate to

of ROEs, way a got capital reasonable to up a guarantee to us that, company down to with think Its will to widening we So go for financial relatively the should get we’ve is the relative move earned valuation contribute long we the can level profitability a), And that capital to improve. opportunity look cost growing. the the strong premiums. a to is therefore, very of the business still working higher the that higher provide forward ROE optimism

next For balance. are capital we managing still years, the the few

side, finally breakeven. stabilized and we little bit on the asset management As the platform talked got about we a

Now, the operation. the of to we started profitability and have see to that verticals build

with at I think of two marketplace. all base the If relative against in you very functioning the to a lines ROE it good the combined, us continue business very lower capital puts well situation is look in very, of three improvement this

Unidentified Analyst

Thank you. Great.

Rob Bailenson

Tommy. Thanks,

Operator

We Dowling go question our Partners. Dunn & next will line from Geoffrey ahead. the Please with take of

Your line is now open.

Geoffrey Dunn

Thanks. guys. Good morning,

Rob Bailenson

Hi, Geoff.

Dominic Frederico

Hi, Geoff.

Geoffrey Dunn

some to the applies that received, – received received a CVIs to on how back on well? wanted securities, believe understand does I you CVIs or correctly, that but as I occurred Rob, those X you you if mark, has on GOs is understand mark since new July I trading the the extend that to of the instruments

Rob Bailenson

receive back the It when Yes. we original CVIs. extends to

Geoffrey Dunn

Okay.

the of no? it stuff, HTA some includes too So – or but

Rob Bailenson

came very late. stuff HTA in The

to movement obligations, So not initiated. that, general related is the primarily mark-to-market

Geoffrey Dunn

Okay.

the quarter, on So your in is on and affect mark-to-market with reserve marked understand wanted received the to at position? core all here to going bounce is doesn’t or be any that truly it to what with that it’s just each respect your to noise noise future obviously, CVIs does around implications the I have recovery reserving assumptions

Dominic Frederico

a remember, the you instruments we investment Geoff, now insurance if receive in policy. hold price to period That book the the recovery them Once sell recovery receipt. of physically either terms they estimate. So you the become recovery, the to It day or of on get sets to now the subject the investment them. until an pricing of portfolio, you portfolio any other volatility in in maturity investment relative

Rob Bailenson

Yes.

and what’s have going locked already in flow that investment to now it’s we So reserve our through to be portfolio. going actually in

Geoffrey Dunn

I if your trading recovery CVI future? now in still securities expectation you to am wondering That way have influence the just received on understand. the in I any be the

Dominic Frederico

Not but right. investment for the policy, the insurance return, now for

the on you of ultimately policy. understand that the sure at settlement, insurance data to make got the locks that the you So in recovery

as it’s no becomes balance shareholder the we market accordingly recovery returns, And we And with expectations at manage investments, if we conditions, Now what the period. through do what to longer ultimately was are. insurance, obviously, continue market on the go and those that an now returns investment. to you evaluate claim of look will having therefore, anything

Rob Bailenson

CVIs of we to the this transportation. the and maybe And received, get already all will that – were going have we received already GOs we from Geoff, help have

getting not anymore. we not do we are – expect So,

will not any affect assumptions. it So reserve

Geoffrey Dunn

Okay.

all So – or the new to and is component is there then bond then that’s on remaining still new HTA, a come? and cash bonds

Rob Bailenson

the and plan As coming cash is the new approved. when bonds

Geoffrey Dunn

Got it.

you. Thank great. Okay,

Operator

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

Robert Tucker

Thank and today’s call. operator all thank you for joining on us you,

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

Operator

attending. concludes for call. Thank conference This today’s you

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

Assured Guaranty (AGO) 7 Aug 222022 Q2 Earnings call transcript