- GAAP Highlights:
- Net income attributable to Assured Guaranty Ltd. was $157
million, or $2.60 per share,(1) for third quarter 2023.
- Shareholders’ equity attributable to Assured Guaranty Ltd. per
share was $90.84 as of September 30, 2023.
- Gross written premiums (GWP) were $40 million for third quarter
2023.
- Non-GAAP Highlights:
- Adjusted operating income(2) was $206 million, or $3.42 per
share, for third quarter 2023.
- Adjusted operating shareholders’ equity(2) per share and
adjusted book value (ABV)(2) per share were $99.18 and $148.03,
respectively, as of September 30, 2023.
- Present value of new business production (PVP)(2) was $46
million for third quarter 2023.
- Sound Point and AHP Transaction Gain
- Gain on Sound Point and AHP transactions(3) of $241 million
(pre-tax, net of transaction expenses).
- Return of Capital to Shareholders:
- Third quarter 2023 capital returned to shareholders was $80
million including share repurchases of $64 million and dividends of
$16 million.
- Share repurchase authorization was increased by $300 million on
November 1, 2023.
Assured Guaranty Ltd. (NYSE: AGO) (AGL and, together with its
subsidiaries, Assured Guaranty or the Company) announced today its
financial results for the three-month period ended September 30,
2023 (third quarter 2023).
“Assured Guaranty achieved important strategic objectives in
asset management, new business production and capital management
during the third quarter and first nine months of 2023,” said
Dominic Frederico, President and CEO. “In July, we completed our
transactions with Sound Point Capital Management and AHP, which
resulted in a third quarter $241 million pre-tax gain, net of
expenses. We now continue our asset management participation
through our 30% ownership interest in Sound Point, furthering our
strategy of generating fee-based earnings to complement our
risk-based financial guaranty earnings. The earnings from that
stake will be reflected for the first time in our fourth quarter
reporting. We also expect enhanced returns on our investment
portfolio based on a broader range of alternative investment
options with Sound Point.
“In new business production year-to-date, we increased our
municipal bond insurance market share, with a 62% share of insured
par sold in the primary market. Additionally, increased production
in global structured finance further validates our diversified
underwriting strategy of U.S. public finance, international
infrastructure, and global structured finance.
“In capital management during the third quarter, we refinanced
$330 million of senior debt that was due to mature next year. We
also picked up the pace of our share repurchases, buying $64
million of shares in the quarter, and in November, our board of
directors increased our repurchase authorization by $300
million.”
(1)
Per share information for net income and
adjusted operating income is based on diluted shares.
(2)
Please see “Explanation of Non-GAAP
Financial Measures.”
(3)
Sound Point Capital Management, LP (Sound
Point) and Assured Healthcare Partners LLC (AHP).
Summary Financial
Results
(in millions, except per share
amounts)
Quarter Ended
September 30,
2023
2022
GAAP (1)
Net income (loss) attributable to
AGL
$
157
$
11
Net income (loss) attributable to AGL
per diluted share
$
2.60
$
0.18
Weighted average diluted shares
59.6
62.9
Non-GAAP
Adjusted operating income (loss) (2)
$
206
$
133
Adjusted operating income per diluted
share (2)
$
3.42
$
2.11
Weighted average diluted shares
59.6
62.9
Gain (loss) related to FG VIE and CIV
consolidation (3) included in adjusted operating income
$
(8
)
$
7
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income per share
$
(0.13
)
$
0.12
Components of total adjusted operating
income (loss)
Insurance segment
$
59
$
159
Asset Management segment
—
(3
)
Corporate division
155
(30
)
Other
(8
)
7
Adjusted operating income (loss)
$
206
$
133
As of
September 30, 2023
December 31, 2022
Amount
Per Share
Amount
Per Share
Shareholders’ equity attributable to
AGL
$
5,252
$
90.84
$
5,064
$
85.80
Adjusted operating shareholders’ equity
(3)
5,735
99.18
5,543
93.92
ABV (3)
8,559
148.03
8,379
141.98
Common Shares Outstanding
57.8
59.0
(1)
Generally accepted accounting principles
in the United States of America.
(2)
Please see “Explanation of Non-GAAP
Financial Measures” at the end of this press release.
(3)
The effect of consolidating financial
guaranty variable interest entities (FG VIEs) and consolidated
investment vehicles (CIVs).
GAAP net income increased primarily due to the gain associated
with the Sound Point and AHP transactions, partially offset by
higher loss and loss adjustment expense (LAE). On a per share
basis, shareholders’ equity attributable to AGL increased to $90.84
as of September 30, 2023 from $85.80 as of December 31, 2022,
primarily due to net income and share repurchases, partially offset
by dividends and unrealized losses in the investment portfolio. On
a per share basis, ABV increased to $148.03 as of September 30,
2023 from $141.98 as of December 31, 2022, primarily due to
adjusted operating income, new business production and share
repurchases, partially offset by loss development and
dividends.
Insurance Segment
The Insurance segment primarily consists of the Company’s
insurance subsidiaries that provide credit protection products to
the United States (U.S.) and non-U.S. public finance (including
infrastructure) and structured finance markets.
Insurance Segment
Results
(in millions)
Quarter Ended
September 30,
2023
2022
Segment revenues
Net earned premiums and credit derivative
revenues
$
99
$
92
Net investment income
101
69
Fair value gains (losses) on trading
securities
4
(8
)
Foreign exchange gains (losses) on
remeasurement and other income (loss)
4
(6
)
Total segment revenues
208
147
Segment expenses
Loss expense (benefit)
101
(75
)
Amortization of deferred acquisition costs
(DAC)
4
4
Employee compensation and benefit
expenses
37
34
Other operating expenses
23
21
Total segment expenses
165
(16
)
Equity in earnings (losses) of
investees
25
(11
)
Segment adjusted operating income
(loss) before income taxes
68
152
Less: Provision (benefit) for income
taxes
9
(7
)
Segment adjusted operating income
(loss)
$
59
$
159
Insurance segment adjusted operating income decreased to $59
million in third quarter 2023, from $159 million in the three-month
period ended September 30, 2022 (third quarter 2022). The decrease
was primarily due to higher loss expense in third quarter 2023,
partially offset by higher income from the investment portfolio in
third quarter 2023. The components of premiums, losses and income
from the investment portfolio are presented below.
Insurance Segment Net Earned Premiums and Credit Derivative
Revenues
Insurance Segment
Net Earned Premiums and Credit
Derivative Revenues
(in millions)
Quarter Ended
September 30,
2023
2022
Scheduled net earned premiums and credit
derivative revenues
$
84
$
80
Accelerations
15
12
Total
$
99
$
92
Insurance Segment Loss Expense (Benefit) and the Roll Forward
of Expected Losses
Loss expense is a function of net economic loss development
(benefit), as well as the amortization of deferred premium
revenue.
Insurance Segment
Loss Expense (Benefit)
(in millions)
Quarter Ended
September 30,
2023
2022
Public finance
$
138
$
4
U.S. residential mortgage-backed
securities (RMBS)
(38
)
(82
)
Other structured finance
1
3
Total
$
101
$
(75
)
The table below presents the roll forward of net expected losses
for third quarter 2023.
Roll Forward of Net Expected
Loss to be Paid (Recovered) (1)
(in millions)
Net Expected Loss to be Paid
(Recovered) as of June 30, 2023
Net Economic Loss Development
(Benefit)
Net (Paid) Recovered
Losses
Net Expected Loss to be Paid
(Recovered) as of September 30, 2023
Public finance
$
443
$
134
$
(169
)
$
408
U.S. RMBS
73
(48
)
13
38
Other structured finance
44
1
(1
)
44
Total
$
560
$
87
$
(157
)
$
490
(1)
Net economic loss development (benefit)
represents the change in net expected loss to be paid (recovered)
attributable to the effects of changes in the economic performance
of insured transactions, changes in assumptions based on observed
market trends, changes in discount rates, accretion of discount and
the economic effects of loss mitigation efforts, each net of
reinsurance. Net economic loss development (benefit) is the
principal measure that the Company uses to evaluate the loss
experience in its insured portfolio. Expected loss to be paid
(recovered) includes all transactions insured by the Company,
regardless of the accounting model prescribed under GAAP and
without consideration of deferred premium revenue.
The net economic loss development in third quarter 2023 of $87
million was mainly attributable to insured exposure to Puerto Rico
Electric Power Authority, partially offset by a benefit in RMBS
which was primarily due to higher recovery assumptions. The effect
of changes in risk-free rates used to discount expected losses was
a benefit of $12 million.
Insurance Segment Income from Investment Portfolio
Insurance Segment
Income from Investment
Portfolio
(in millions)
Quarter Ended
September 30,
2023
2022
Net investment income
$
101
$
69
Fair value gains (losses) on trading
securities (1)
4
(8
)
Equity in earnings (losses) of investees
(2)
25
(11
)
Total
$
130
$
50
(1)
Represents contingent value instruments
issued by Puerto Rico that are classified as trading securities
with changes in fair value reported in the condensed consolidated
statements of operations.
(2)
Equity in earnings (losses) of investees
relates to funds managed by Sound Point and AHP, and certain other
managers, as well as, prior to July 1, 2023, AssuredIM. Investments
in funds are generally reported on a one-quarter lag. The Company’s
share of Sound Point earnings will be reported for the first time
in the fourth quarter of 2023.
Net investment income, which represents interest income on
fixed-maturity debt securities and short-term investments, was
higher in third quarter 2023 compared with third quarter 2022
primarily due to higher short-term interest rates and average
balances, and accelerated accretion on certain loss mitigation
securities.
As of September 30, 2023, the Insurance segment had $620 million
in alternative investments, which had a blended return of
approximately 12% for the nine months ended September 30, 2023.
In the Insurance segment, alternative investments consist
primarily of funds managed by Sound Point, AHP and other managers,
and are generally recorded at net asset value (NAV), with changes
in NAV reported in “equity in earnings (losses) of investees.”
Equity in earnings of investees is more volatile than net
investment income on fixed-maturity securities and short-term
investments. To the extent that the amounts invested in alternative
fund investments increase and available-for-sale fixed-maturity
securities decrease, net investment income may decline and
mark-to-market volatility related to equity in earnings of
investees may increase.
Insurance Segment New Business Production
Insurance Segment
New Business
Production
(in millions)
Quarter Ended September
30,
2023
2022
GWP
PVP (1)
Gross Par Written (1)
GWP
PVP (1)
Gross Par Written (1)
Public finance - U.S.
$
29
$
30
$
5,098
$
54
$
57
$
3,622
Public finance - non-U.S.
(5
)
2
61
44
37
194
Structured finance - U.S.
15
12
267
(2
)
1
30
Structured finance - non-U.S.
1
2
522
(2
)
—
—
Total
$
40
$
46
$
5,948
$
94
$
95
$
3,846
(1)
PVP, a non-GAAP financial measure,
measures the value of the Insurance segment’s new business
production for all contracts regardless of form or GAAP accounting
model. See “Explanation of Non-GAAP Financial Measures” at the end
of this press release. PVP and Gross Par Written in the table above
are based on “close date,” when the transaction settles. GWP may be
negative due to changes in debt service assumptions.
U.S. public finance GWP and PVP in third quarter 2023 were lower
than the comparable GWP and PVP in third quarter 2022, due to a
large transportation revenue transaction in third quarter 2022 that
did not recur in third quarter 2023, and higher credit quality new
business that carry lower premium rates in third quarter 2023,
compared with third quarter 2022. The Company’s direct par written
represented 61% of the total U.S. municipal market insured issuance
in third quarter 2023, compared with 56% in third quarter 2022, and
the Company’s penetration of all municipal issuance was 4.6% in
third quarter 2023 compared with 3.2% in third quarter 2022.
Structured finance GWP and PVP in third quarter 2023 is
primarily attributable to an insurance securitization.
Asset Management Segment
Upon the effective date of the Sound Point and AHP transactions
in July 2023, the Company continues to participate in the asset
management business through its ownership interest in Sound Point.
The Company did not report any asset management income in third
quarter 2023 because Sound Point’s results are reported on a one
quarter lag. The Company will report its first quarter of earnings
from its interest in Sound Point in the fourth quarter of 2023. In
third quarter 2022, asset management adjusted operating loss was $3
million.
Corporate Division
Corporate Division
Results
(in millions)
Quarter Ended
September 30,
2023
2022
Revenues
Gain on sale of asset management
subsidiaries
$
255
$
—
Other
4
1
Total revenues
259
1
Expenses
Interest expense
26
22
Employee compensation and benefit
expenses
10
7
Other operating expenses
21
5
Total expenses
57
34
Equity in earnings (losses) of
investees
—
—
Adjusted operating income (loss) before
income taxes
202
(33
)
Less: Provision (benefit) for income
taxes
47
(3
)
Adjusted operating income
(loss)
$
155
$
(30
)
Corporate division adjusted operating income in third quarter
2023 includes a pre-tax gain resulting from the Sound Point and AHP
transactions in third quarter 2023 of $241 million, which is net of
$14 million in transaction costs (primarily advisory and legal
expenses reported in other operating expenses). The increase in
interest expense in third quarter 2023 compared with third quarter
2022 is primarily due to interest expense on newly issued 6.125%
Senior Notes in August 2023, whose proceeds were used to redeem 5%
Senior Notes at the end of September 2023.
Other (Effect of FG VIE and CIV consolidation)
The effect of consolidating FG VIEs and CIVs was a loss of $8
million in third quarter 2023 compared with a gain of $7 million in
third quarter 2022. Third quarter 2023 includes a $16 million loss
on the deconsolidation of all the collateralized loan obligations
(CLOs), CLO warehouses and an AHP fund. Upon closing of the Sound
Point and AHP transactions, the Company was no longer the primary
beneficiary of these vehicles under GAAP. The net effect of FG VIE
consolidation is primarily a function of changes in fair value.
Reconciliation to GAAP
The following table presents a reconciliation of net income
(loss) attributable to AGL to adjusted operating income (loss).
Reconciliation of Net Income
(Loss) Attributable to AGL to
Adjusted Operating Income
(Loss)
(in millions, except per share
amounts)
Quarter Ended
September 30,
2023
2022
Total
Per Diluted Share
Total
Per Diluted Share
Net income (loss) attributable to
AGL
$
157
$
2.60
$
11
$
0.18
Less pre-tax adjustments:
Realized gains (losses) on investments
(9
)
(0.16
)
(14
)
(0.22
)
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
6
0.12
(49
)
(0.78
)
Fair value gains (losses) on committed
capital securities (CCS)
(20
)
(0.33
)
1
0.02
Foreign exchange gains (losses) on
remeasurement of premiums receivable and loss and LAE reserves
(37
)
(0.61
)
(78
)
(1.25
)
Total pre-tax adjustments
(60
)
(0.98
)
(140
)
(2.23
)
Less tax effect on pre-tax adjustments
11
0.16
18
0.30
Adjusted operating income (loss)
$
206
$
3.42
$
133
$
2.11
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income
$
(8
)
$
(0.13
)
$
7
$
0.12
Non-credit impairment-related unrealized fair value gains on
credit derivatives in third quarter 2023 were primarily generated
by lower collateral asset spreads. Non-credit impairment-related
unrealized fair value losses on credit derivatives in third quarter
2022 were generated primarily as a result of wider asset spreads
and a tightening of Assured Guaranty Corp. spreads. Except for
credit impairment, the fair value adjustments on credit derivatives
in the insured portfolio are non-economic adjustments that reverse
to zero over the remaining term of that portfolio.
Fair value of CCS is heavily affected by, and in part fluctuates
with, changes in market interest rates, credit spreads and other
market factors and are not expected to result in an economic gain
or loss. Fair value losses on CCS in third quarter 2023 were
primarily due to a tightening in market spreads.
Foreign exchange gains (losses) in both periods primarily relate
to remeasurement of premiums receivable and are mainly due to
changes in the exchange rate relative to the U.S. dollar of the
pound sterling and, to a lesser extent, the euro.
Common Share Repurchases
On November 1, 2023, the Board of Directors (the Board)
authorized the repurchase of an additional $300 million of its
common shares. From the beginning of the repurchase program in 2013
through November 7, 2023, the Company repurchased a total of 143
million common shares at an average price of $33.49, representing
approximately 74% of the total shares outstanding. As of November
7, 2023, the Company was authorized to purchase $372 million of its
common shares. These repurchases can be made from time to time in
the open market or in privately negotiated transactions.
The following table summarizes share repurchase activity
in 2023.
Summary of Share
Repurchases
(in millions, except per share
amounts)
Amount
Number of Shares
Average Price Per
Share
2023 (January 1 - March 31)
$
2
0.04
$
62.23
2023 (April 1 - June 30)
24
0.45
53.08
2023 (July 1 - September 30)
64
1.07
59.67
2023 (October 1 - November 7)
42
0.68
61.17
Total 2023
$
132
2.24
58.83
The timing, form and amount of the share repurchases under the
program are at the discretion of management and will depend on a
variety of factors, including funds available at the parent
company, other potential uses for such funds, market conditions,
the Company's capital position, legal requirements and other
factors. The repurchase program may be modified, extended or
terminated by the Board of Directors at any time. It does not have
an expiration date.
Financial Statements
Condensed Consolidated
Statements of Operations (unaudited)
(in millions)
Quarter Ended
September 30,
2023
2022
Revenues
Net earned premiums
$
95
$
89
Net investment income
100
67
Asset management fees
—
16
Net realized investment gains (losses)
(9
)
(14
)
Fair value gains (losses) on credit
derivatives
9
(48
)
Fair value gains (losses) on CCS
(20
)
1
Fair value gains (losses) on FG VIEs
6
11
Fair value gains (losses) on CIVs
(4
)
8
Foreign exchange gain (loss) on
remeasurement
(39
)
(80
)
Fair value gains (losses) on trading
securities
4
(8
)
Gain on sale of asset management
subsidiaries
255
—
Other income (loss)
6
(1
)
Total revenues
403
41
Expenses
Loss and LAE (benefit)
100
(75
)
Interest expense
24
20
Amortization of DAC
4
4
Employee compensation and benefit
expenses
47
57
Other operating expenses
44
37
Total expenses
219
43
Income (loss) before income taxes and
equity in earnings (losses) of investees
184
(2
)
Equity in earnings (losses) of
investees
18
(20
)
Income (loss) before income
taxes
202
(22
)
Less: Provision (benefit) for income
taxes
43
(27
)
Net income (loss)
159
5
Less: Noncontrolling interests
2
(6
)
Net income (loss) attributable to
AGL
$
157
$
11
Condensed Consolidated Balance
Sheets (unaudited)
(in millions)
As of
September 30, 2023
December 31, 2022
Assets
Investments:
Fixed-maturity securities
available-for-sale, at fair value
$
6,267
$
7,119
Fixed-maturity securities, trading, at
fair value
350
303
Short-term investments, at fair value
1,426
810
Other invested assets
765
133
Total investments
8,808
8,365
Cash
108
107
Premiums receivable, net of commissions
payable
1,376
1,298
DAC
158
147
Salvage and subrogation recoverable
282
257
FG VIEs’ assets
327
416
Assets of CIVs
330
5,493
Goodwill and other intangible assets
6
163
Other assets
549
597
Total assets
$
11,944
$
16,843
Liabilities
Unearned premium reserve
$
3,600
$
3,620
Loss and LAE reserve
361
296
Long-term debt
1,693
1,675
Credit derivative liabilities, at fair
value
50
163
FG VIEs’ liabilities, at fair value
542
715
Liabilities of CIVs
4
4,625
Other liabilities
393
457
Total liabilities
6,643
11,551
Shareholders’ equity
Common shares
1
1
Retained earnings
5,815
5,577
Accumulated other comprehensive income
(loss)
(565
)
(515
)
Deferred equity compensation
1
1
Total shareholders’ equity attributable
to AGL
5,252
5,064
Nonredeemable noncontrolling interests
49
228
Total shareholders’ equity
5,301
5,292
Total liabilities and shareholders’
equity
$
11,944
$
16,843
Explanation of Non-GAAP Financial Measures
The Company discloses both: (i) financial measures determined in
accordance with GAAP; and (ii) financial measures not determined in
accordance with GAAP (non-GAAP financial measures). Financial
measures identified as non-GAAP should not be considered
substitutes for GAAP financial measures. The primary limitation of
non-GAAP financial measures is the potential lack of comparability
to financial measures of other companies, whose definitions of
non-GAAP financial measures may differ from those of the
Company.
The Company believes its presentation of non-GAAP financial
measures provides information that is necessary for analysts to
calculate their estimates of Assured Guaranty’s financial results
in their research reports on Assured Guaranty and for investors,
analysts and the financial news media to evaluate Assured
Guaranty’s financial results.
GAAP requires the Company to consolidate entities where it is
deemed to be the primary beneficiary which include:
- FG VIEs, which the Company does not own and where its exposure
is limited to its obligation under the financial guaranty insurance
contract, and
- CIVs in which certain subsidiaries invest.
The Company discloses the effect of FG VIE and CIV consolidation
that is embedded in each non-GAAP financial measure, as applicable.
The Company believes this information may also be useful to
analysts and investors evaluating Assured Guaranty’s financial
results. In the case of both the consolidated FG VIEs and the CIVs,
the economic effect on the Company of each of the consolidated FG
VIEs and CIVs is reflected primarily in the results of the
Insurance segment.
Management of the Company and AGL’s Board of Directors use
non-GAAP financial measures further adjusted to remove the effect
of FG VIE and CIV consolidation (which the Company refers to as its
core financial measures), as well as GAAP financial measures and
other factors, to evaluate the Company’s results of operations,
financial condition and progress towards long-term goals. The
Company uses core financial measures in its decision-making process
for and in its calculation of certain components of management
compensation. The financial measures that the Company uses to help
determine compensation are: (1) adjusted operating income, further
adjusted to remove the effect of FG VIE and CIV consolidation; (2)
adjusted operating shareholders’ equity, further adjusted to remove
the effect of FG VIE and CIV consolidation; (3) adjusted book value
per share, further adjusted to remove the effect of FG VIE and CIV
consolidation; and (4) PVP.
Management believes that many investors, analysts and financial
news reporters use adjusted operating shareholders’ equity and/or
adjusted book value, each further adjusted to remove the effect of
FG VIE and CIV consolidation, as the principal financial measures
for valuing AGL’s current share price or projected share price and
also as the basis of their decision to recommend, buy or sell AGL’s
common shares. Management also believes that many of the Company’s
fixed income investors also use adjusted operating shareholders’
equity, further adjusted to remove the effect of FG VIE and CIV
consolidation, to evaluate the Company’s capital adequacy.
Adjusted operating income, further adjusted for the effect of FG
VIE and CIV consolidation, enables investors and analysts to
evaluate the Company’s financial results in comparison with the
consensus analyst estimates distributed publicly by financial
databases.
The following paragraphs define each non-GAAP financial measure
disclosed by the Company and describe why it is useful. To the
extent there is a directly comparable GAAP financial measure, a
reconciliation of the non-GAAP financial measure and the most
directly comparable GAAP financial measure is presented below.
Adjusted Operating Income
Management believes that adjusted operating income is a useful
measure because it clarifies the understanding of the operating
results of the Company. Adjusted operating income is defined as net
income (loss) attributable to AGL, as reported under GAAP, adjusted
for the following:
1) Elimination of realized gains (losses) on
the Company’s investments, except for gains and losses on
securities classified as trading. The timing of realized gains and
losses, which depends largely on market credit cycles, can vary
considerably across periods. The timing of sales is largely subject
to the Company’s discretion and influenced by market opportunities,
as well as the Company’s tax and capital profile.
2) Elimination of non-credit
impairment-related unrealized fair value gains (losses) on credit
derivatives that are recognized in net income, which is the amount
of unrealized fair value gains (losses) in excess of the present
value of the expected estimated economic credit losses, and
non-economic payments. Such fair value adjustments are heavily
affected by, and in part fluctuate with, changes in market interest
rates, the Company’s credit spreads, and other market factors and
are not expected to result in an economic gain or loss.
3) Elimination of fair value gains (losses)
on the Company’s CCS that are recognized in net income. Such
amounts are affected by changes in market interest rates, the
Company’s credit spreads, price indications on the Company’s
publicly traded debt and other market factors and are not expected
to result in an economic gain or loss.
4) Elimination of foreign exchange gains
(losses) on remeasurement of net premium receivables and loss and
LAE reserves that are recognized in net income. Long-dated
receivables and loss and LAE reserves represent the present value
of future contractual or expected cash flows. Therefore, the
current period’s foreign exchange remeasurement gains (losses) are
not necessarily indicative of the total foreign exchange gains
(losses) that the Company will ultimately recognize.
5) Elimination of the tax effects related to
the above adjustments, which are determined by applying the
statutory tax rate in each of the jurisdictions that generate these
adjustments.
See “Reconciliation to GAAP” above for a reconciliation of net
income (loss) attributable to AGL to adjusted operating income
(loss).
Adjusted Operating Shareholders’ Equity and Adjusted Book
Value
Management believes that adjusted operating shareholders’ equity
is a useful measure because it excludes the fair value adjustments
on investments, credit derivatives and CCS that are not expected to
result in economic gain or loss.
Adjusted operating shareholders’ equity is defined as
shareholders’ equity attributable to AGL, as reported under GAAP,
adjusted for the following:
1) Elimination of non-credit
impairment-related unrealized fair value gains (losses) on credit
derivatives, which is the amount of unrealized fair value gains
(losses) in excess of the present value of the expected estimated
economic credit losses, and non-economic payments. Such fair value
adjustments are heavily affected by, and in part fluctuate with,
changes in market interest rates, credit spreads and other market
factors and are not expected to result in an economic gain or
loss.
2) Elimination of fair value gains (losses)
on the Company’s CCS. Such amounts are affected by changes in
market interest rates, the Company’s credit spreads, price
indications on the Company’s publicly traded debt, and other market
factors and are not expected to result in an economic gain or
loss.
3) Elimination of unrealized gains (losses)
on the Company’s investments that are recorded as a component of
accumulated other comprehensive income (AOCI). The AOCI component
of the fair value adjustment on the investment portfolio is not
deemed economic because the Company generally holds these
investments to maturity and therefore would not recognize an
economic gain or loss.
4) Elimination of the tax effects related to
the above adjustments, which are determined by applying the
statutory tax rate in each of the jurisdictions that generate these
adjustments.
Management uses adjusted book value, further adjusted to remove
the effect of FG VIE and CIV consolidation, to measure the
intrinsic value of the Company, excluding franchise value. Adjusted
book value per share, further adjusted for FG VIE and CIV
consolidation (core adjusted book value), is one of the key
financial measures used in determining the amount of certain
long-term compensation elements to management and employees and
used by rating agencies and investors. Management believes that
adjusted book value is a useful measure because it enables an
evaluation of the Company’s in-force premiums and revenues net of
expected losses. Adjusted book value is adjusted operating
shareholders’ equity, as defined above, further adjusted for the
following:
1) Elimination of deferred acquisition costs,
net. These amounts represent net deferred expenses that have
already been paid or accrued and will be expensed in future
accounting periods.
2) Addition of the net present value of
estimated net future revenue. See below.
3) Addition of the deferred premium revenue
on financial guaranty contracts in excess of expected loss to be
expensed, net of reinsurance. This amount represents the present
value of the expected future net earned premiums, net of the
present value of expected losses to be expensed, which are not
reflected in GAAP equity.
4) Elimination of the tax effects related to
the above adjustments, which are determined by applying the
statutory tax rate in each of the jurisdictions that generate these
adjustments.
The unearned premiums and revenues included in adjusted book
value will be earned in future periods, but actual earnings may
differ materially from the estimated amounts used in determining
current adjusted book value due to changes in foreign exchange
rates, prepayment speeds, terminations, credit defaults and other
factors.
Reconciliation of
Shareholders’ Equity Attributable to AGL to
Adjusted Operating
Shareholders’ Equity and ABV
(in millions, except per share
amounts)
As of
September 30, 2023
December 31, 2022
Total
Per Share
Total
Per Share
Shareholders’ equity attributable to
AGL
$
5,252
$
90.84
$
5,064
$
85.80
Less pre-tax adjustments:
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
38
0.66
(71
)
(1.21
)
Fair value gains (losses) on CCS
12
0.21
47
0.80
Unrealized gain (loss) on investment
portfolio
(609
)
(10.52
)
(523
)
(8.86
)
Less taxes
76
1.31
68
1.15
Adjusted operating shareholders’
equity
5,735
99.18
5,543
93.92
Pre-tax adjustments:
Less: DAC
158
2.73
147
2.48
Plus: Net present value of estimated net
future revenue
190
3.28
157
2.66
Plus: Net deferred premium revenue on
financial guaranty contracts in excess of expected loss to be
expensed
3,404
58.88
3,428
58.10
Plus taxes
(612
)
(10.58
)
(602
)
(10.22
)
ABV
$
8,559
$
148.03
$
8,379
$
141.98
Gain (loss) related to FG VIE and CIV
consolidation included in:
Adjusted operating shareholders’
equity
$
4
$
0.06
$
17
$
0.28
ABV
(2
)
(0.03
)
11
0.19
Shares outstanding at the end of the
period
57.8
59.0
Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because
it enables an evaluation of the present value of estimated net
future revenue for non-financial guaranty insurance contracts. This
amount represents the net present value of estimated future revenue
from these contracts (other than credit derivatives with net
expected losses), net of reinsurance, ceding commissions and
premium taxes.
Future installment premiums are discounted at the approximate
average pre-tax book yield of fixed-maturity securities purchased
during the prior calendar year, other than Loss Mitigation
Securities. The discount rate is recalculated annually and updated
as necessary. Net present value of estimated future revenue for an
obligation may change from period to period due to a change in the
discount rate or due to a change in estimated net future revenue
for the obligation, which may change due to changes in foreign
exchange rates, prepayment speeds, terminations, credit defaults or
other factors that affect par outstanding or the ultimate maturity
of an obligation. There is no corresponding GAAP financial
measure.
PVP or Present Value of New Business Production
Management believes that PVP is a useful measure because it
enables the evaluation of the value of new business production in
the Insurance segment by taking into account the value of estimated
future installment premiums on all new contracts underwritten in a
reporting period as well as additional installment premiums and
fees on existing contracts (which may result from supplements or
fees or from the issuer not calling an insured obligation the
Company projected would be called), regardless of form, which
management believes GAAP gross written premiums and changes in fair
value of credit derivatives do not adequately measure. PVP in
respect of contracts written in a specified period is defined as
gross upfront and installment premiums received and the present
value of gross estimated future installment premiums.
Future installment premiums are discounted at the approximate
average pre-tax book yield of fixed-maturity securities purchased
during the prior calendar year, other than certain fixed-maturity
securities such as Loss Mitigation Securities. The discount rate is
recalculated annually and updated as necessary. Under GAAP,
financial guaranty installment premiums are discounted at a
risk-free rate. Additionally, under GAAP, management records future
installment premiums on financial guaranty insurance contracts
covering non-homogeneous pools of assets based on the contractual
term of the transaction, whereas for PVP purposes, management
records an estimate of the future installment premiums the Company
expects to receive, which may be based upon a shorter period of
time than the contractual term of the transaction.
Actual installment premiums may differ from those estimated in
the Company’s PVP calculation due to factors including, but not
limited to, changes in foreign exchange rates, prepayment speeds,
terminations, credit defaults or other factors that affect par
outstanding or the ultimate maturity of an obligation.
Reconciliation of GWP to
PVP
(in millions)
Quarter Ended
September 30, 2023
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
GWP
$
29
$
(5
)
$
15
$
1
$
40
Less: Installment GWP and other GAAP
adjustments (1)
6
(5
)
15
1
17
Upfront GWP
23
—
—
—
23
Plus: Installment premiums and other
(2)
7
2
12
2
23
PVP
$
30
$
2
$
12
$
2
$
46
Quarter Ended
September 30, 2022
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
GWP
$
54
$
44
$
(2
)
$
(2
)
$
94
Less: Installment GWP and other GAAP
adjustments (1)
—
44
(3
)
(2
)
39
Upfront GWP
54
—
1
—
55
Plus: Installment premiums and other
(2)
3
37
—
—
40
PVP
$
57
$
37
$
1
$
—
$
95
(1)
Includes the present value of new business
on installment policies discounted at the prescribed GAAP discount
rates, GWP adjustments on existing installment policies due to
changes in assumptions and other GAAP adjustments.
(2)
Includes the present value of future
premiums and fees on new business paid in installments, discounted
at the approximate average pre-tax book yield of fixed-maturity
securities purchased during the prior calendar year, other than
certain fixed-maturities such as loss mitigation securities.
Conference Call and Webcast Information
The Company will host a conference call for investors at 7:00
a.m. Eastern Time (8:00 a.m. Atlantic Time) on Wednesday, November
8, 2023. The conference call will be available via live webcast in
the Investor Information section of the Company’s website at
AssuredGuaranty.com or by dialing 1-833-470-1428 (in the U.S.) or
1-404-975-4839 (International); the access code is 749082.
A replay of the conference call will be available approximately
three hours after the call ends. The webcast replay will be
available for 90 days in the Investor Information section of the
Company’s website at AssuredGuaranty.com and the telephone replay
will be available for 30 days by dialing 1-866-813-9403 (in the
U.S.) or 1-929-458-6194 (International); the access code is
947645.
Please refer to Assured Guaranty’s September 30, 2023 Financial
Supplement, which is posted on the Company's website at
assuredguaranty.com/agldata, for more information on the Company’s
financial guaranty portfolio, investment portfolio and other items.
In addition, the Company is posting at
assuredguaranty.com/presentations its “September 30, 2023 Equity
Investor Presentation”.
The Company plans to post by early next week on its website at
assuredguaranty.com/agldata the following:
- “Public Finance Transactions in 3Q 2023,” which lists the U.S.
public finance new issues insured by the Company in third quarter
2023, and
- “Structured Finance Transactions at September 30, 2023,” which
lists the Company’s structured finance exposure as of that
date.
In addition, the Company will post on its website, when
available, the Company’s separate-company subsidiary financial
supplements and its “Fixed Income Presentation” for the current
quarter. Those documents will be furnished to the Securities and
Exchange Commission in a Current Report on Form 8-K.
Assured Guaranty Ltd. is a publicly traded (NYSE: AGO),
Bermuda-based holding company. Through its subsidiaries, Assured
Guaranty provides credit enhancement products to the U.S. and
international public finance, infrastructure and structured finance
markets. Assured Guaranty also participates in the asset management
business through its ownership interest in Sound Point. More
information on Assured Guaranty Ltd. and its subsidiaries can be
found at AssuredGuaranty.com.
Cautionary Statement Regarding Forward-Looking
Statements
Any forward-looking statements made in this press release
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. Among factors that could cause actual results to differ
adversely are: (1) significant changes in inflation, interest
rates, the world’s credit markets or segments thereof, credit
spreads, foreign exchange rates or general economic conditions,
including the possibility of a recession or stagflation; (2)
geopolitical risk, including Russia’s invasion of Ukraine and the
resulting economic sanctions, volatility in energy prices,
potential for increased cyberattacks, and risk of intentional or
accidental escalation between The North Atlantic Treaty
Organization (NATO) and Russia, conflict in the Middle East,
confrontation over Iran’s nuclear program, and United States (U.S.)
– China strategic competition and the pursuit of technological
independence; (3) the possibility of a U.S. government shutdown,
payment defaults on the debt of the U.S. government or instruments
issued, insured or guaranteed by related institutions, agencies or
instrumentalities, and downgrades to their credit ratings; (4)
public health crises, including pandemics and endemics, and the
governmental and private actions taken in response to such events;
(5) developments in the world’s financial and capital markets,
including stresses in the financial condition of banking
institutions in the U.S., that adversely affect repayment rates
related to commercial real estate, municipalities and other insured
obligors, Assured Guaranty’s insurance loss or recovery experience,
or investments of Assured Guaranty; (6) reduction in the amount of
available insurance opportunities and/or in the demand for Assured
Guaranty’s insurance; (7) the possibility that budget or pension
shortfalls or other factors will result in credit losses or
impairments on obligations of state, territorial and local
governments and their related authorities and public corporations
that Assured Guaranty insures or reinsures; (8) insured losses,
including losses with respect to related legal proceedings, in
excess of those expected by Assured Guaranty or the failure of
Assured Guaranty to realize loss recoveries that are assumed in its
expected loss estimates for insurance exposures, including as a
result of the final resolution of Assured Guaranty’s remaining
Puerto Rico exposures or the amounts recovered on securities
received in connection with the resolution of Puerto Rico exposures
already resolved; (9) the impact of the Company satisfying its
obligations under insurance policies with respect to legacy insured
Puerto Rico bonds; (10) increased competition, including from new
entrants into the financial guaranty industry, nonpayment insurance
and other forms of capital saving or risk syndication available to
banks and insurers; (11) the possibility that investments made by
Assured Guaranty for its investment portfolio, including
alternative investments and investments it manages, do not result
in the benefits anticipated or subject Assured Guaranty to reduced
liquidity at a time it requires liquidity, or to other negative or
unanticipated consequences; (12) the impacts of the completion of
Assured Guaranty’s transactions with Sound Point Capital
Management, LP (Sound Point) and/or Assured Healthcare Partners LLC
(AHP) on Assured Guaranty and its relationships with its
shareholders, regulators, rating agencies, employees and the
obligors it insures and on the asset management business
contributed to Sound Point and on the business of AHP and their
relationships with their respective clients and employees; (13) the
possibility that strategic transactions made by Assured Guaranty,
including the consummation of the transactions with Sound Point
and/or AHP, do not result in the benefits anticipated or subject
Assured Guaranty to negative consequences; (14) the inability to
control the business, management or policies of entities in which
the Company holds a minority interest; (15) the impact of market
volatility on the mark-to-market of Assured Guaranty’s assets and
liabilities subject to mark-to-market, including certain of its
investments, contracts accounted for as derivatives, and certain
consolidated variable interest entities (VIEs); (16) rating agency
action, including a ratings downgrade, a change in outlook, the
placement of ratings on watch for downgrade, or a change in rating
criteria, at any time, of AGL or any of its insurance subsidiaries,
and/or of any securities AGL or any of its subsidiaries have
issued, and/or of transactions that AGL’s insurance subsidiaries
have insured; (17) the inability of Assured Guaranty to access
external sources of capital on acceptable terms; (18) changes in
applicable accounting policies or practices; (19) changes in
applicable laws or regulations, including insurance, bankruptcy and
tax laws, or other governmental actions; (20) difficulties with the
execution of Assured Guaranty’s business strategy; (21) loss of key
personnel; (22) the effects of mergers, acquisitions and
divestitures; (23) natural or man-made catastrophes or pandemics;
(24) the impact of climate change on Assured Guaranty’s business
and regulatory actions taken related to such risk; (25) other risk
factors identified in AGL’s filings with the U.S. Securities and
Exchange Commission (SEC); (26) other risks and uncertainties that
have not been identified at this time; and (27) management’s
response to these factors. Readers are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking
statements are made as of November 7, 2023, and Assured Guaranty
undertakes no obligation to update publicly or review any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as required by law.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231106294607/en/
Robert Tucker Senior Managing Director, Investor Relations and
Corporate Communications 212-339-0861 rtucker@agltd.com
Ashweeta Durani Vice President, Media Relations 212-408-6042
adurani@agltd.com
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