Fourth Quarter 2021
- GAAP Highlights: Net income attributable to Assured
Guaranty Ltd. was $263 million, or $3.74 per share(1), for fourth
quarter 2021. Shareholders’ equity attributable to Assured Guaranty
Ltd. per share reached a record high of $93.19 as of December 31,
2021.
- Non-GAAP Highlights: Adjusted operating income(2) was
$273 million, or $3.88 per share, for fourth quarter 2021. Adjusted
operating shareholders' equity(2) per share and adjusted book value
(ABV)(2) per share reached record highs of $88.73 and $130.67,
respectively, as of December 31, 2021.
- Return of Capital to Shareholders: Fourth quarter 2021
capital returned to shareholders was $207 million, including the
repurchase of 3.7 million shares for $192 million, and dividends of
$15 million.
- Insurance Segment
- Insurance segment adjusted operating income was $277 million
for fourth quarter 2021.
- Gross written premiums (GWP) were $100 million for fourth
quarter 2021.
- Present value of new business production (PVP) (2) was $98
million for fourth quarter 2021.
- Asset Management Segment
- Asset Management segment adjusted operating loss was $3 million
for fourth quarter 2021.
- Assets under management (AUM) inflows were $950 million for
fourth quarter 2021.
- AUM as of December 31, 2021 was $17.5 billion, compared with
$17.6 billion as of September 30, 2021. Continuing our strategy to
wind down legacy funds, distributions from such funds were $226
million in fourth quarter 2021.
Full Year (FY) 2021
- GAAP Highlights: Net income attributable to Assured
Guaranty Ltd. was $389 million, or $5.23 per share, for FY 2021. FY
2021 included a $175 million pre-tax ($138 million after-tax) loss
on debt extinguishment resulting from the voluntary early
redemption of certain senior notes.
- Non-GAAP Highlights: Adjusted operating income(2) was
$470 million, or $6.32 per share, for FY 2021. FY 2021 included a
$175 million pre-tax ($138 million after-tax) loss on debt
extinguishment resulting from the voluntary early redemption of
certain senior notes.
- Return of Capital to Shareholders: FY 2021 capital
returned to shareholders was $562 million, including the repurchase
of 10.5 million shares (or approximately 14% of shares outstanding
at the beginning of 2021) for $496 million, and dividends of $66
million.
- Debt Issuances and Redemptions
- Issued $500 million of 3.15% senior notes due in 2031.
- Issued $400 million of 3.6% senior notes due in 2051.
- Redeemed $600 million of long-term debt with interest rates
between 5.000% and 6.875%.
- Insurance Segment
- Insurance segment adjusted operating income was $722 million
for FY 2021.
- GWP were $377 million for FY 2021.
- PVP(2) was $361 million for FY 2021.
- Asset Management Segment
- Asset Management segment adjusted operating loss was $19
million for FY 2021.
- AUM inflows were $3.2 billion for FY 2021.
- AUM as of December 31, 2021 was $17.5 billion, compared with
$17.3 billion as of December 31, 2020. Continuing our strategy to
wind down legacy funds, distributions from such funds were $1.0
billion in 2021.
Assured Guaranty Ltd. (NYSE: AGO) (AGL and, together with its
consolidated entities, Assured Guaranty or the Company) announced
today its financial results for the three-month period ended
December 31, 2021 (fourth quarter 2021) and the year ended December
31, 2021 (FY 2021).
“Assured Guaranty’s outstanding 2021 results reflected the
success of our uniquely diversified insurance strategy, the
effectiveness of our loss mitigation efforts in Puerto Rico and
RMBS, and our exercise of prudent capital management,” said Dominic
Frederico, President and CEO.
“We more than doubled annual adjusted operating income per
share, brought our three principal measures of shareholder value to
new highs, and produced $350 million or more of direct PVP for the
third consecutive year. With a more than 60% share of insured par
issued, we led the municipal bond insurance industry to its highest
market penetration in a dozen years. Our insurance business also
performed well in international and structured finance markets, and
we made significant strides in our asset management business.”
(1)
All per share information for net income
and adjusted operating income is based on diluted shares.
(2)
Please see “Explanation of Non-GAAP
Financial Measures.”
Summary Financial
Results
(in millions, except per share
amounts)
Quarter Ended
Year Ended
December 31,
December 31,
2021
2020
2021
2020
GAAP
Net income (loss) attributable to
AGL
$
263
$
148
$
389
$
362
Net income (loss) attributable to
AGL
per diluted share
$
3.74
$
1.82
$
5.23
$
4.19
Weighted average diluted shares
70.4
80.7
74.3
86.2
Non-GAAP
Adjusted operating income (loss) (1)
$
273
$
56
$
470
$
256
Adjusted operating income per diluted
share (1)
$
3.88
$
0.69
$
6.32
$
2.97
Weighted average diluted shares
70.4
80.7
74.3
86.2
Gain (loss) related to FG VIE and CIV
consolidation(2) included in adjusted operating income
$
30
$
(5)
$
30
$
(12)
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income per share
$
0.43
$
(0.06)
$
0.41
$
(0.14)
Components of total adjusted operating
income (loss)
Insurance segment
$
277
$
109
$
722
$
429
Asset Management segment
(3)
(20)
(19)
(50)
Corporate division
(31)
(28)
(263)
(111)
Other
30
(5)
30
(12)
Adjusted operating income (loss)
$
273
$
56
$
470
$
256
As of
December 31, 2021
December 31, 2020
Amount
Per Share
Amount
Per Share
Shareholders' equity attributable to
AGL
$
6,292
$
93.19
$
6,643
$
85.66
Adjusted operating shareholders'
equity(1)
5,991
88.73
6,087
78.49
ABV(1)
8,823
130.67
8,908
114.87
Common Shares Outstanding
67.5
77.5
(1)
Please see “Explanation of Non-GAAP
Financial Measures” at the end of this press release.
(2)
The effect of consolidating financial
guaranty (FG) variable interest entities (VIEs) (FG VIEs) and
consolidated investment vehicles (CIVs).
As of December 31, 2021, on a per share basis, shareholders'
equity attributable to AGL, adjusted operating shareholders' equity
and ABV all reached record highs. The increase in each of these per
share measures, as compared with December 31, 2020, was primarily
due to positive loss development and the accretive effect of the
share repurchase program, partially offset by the loss on
extinguishment of debt recognized in the third quarter of 2021. In
the case of ABV per share, net premiums written in the Insurance
segment also contributed to the increase compared with December 31,
2020. See “Common Share Repurchases” section below.
Fourth Quarter 2021
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. The Insurance
segment is presented without giving effect to the consolidation of
FG VIEs; instead, the Insurance segment includes premiums and
losses of the financial guaranty insurance policies associated with
the FG VIEs' debt. In the case of CIVs, which are primarily funds
and collateralized loan obligations (CLOs) managed by Assured
Investment Management LLC (AssuredIM LLC) and its investment
management affiliates (together with AssuredIM LLC, AssuredIM), the
Insurance segment includes the insurance subsidiaries' share of
earnings from investments in funds managed by AssuredIM (AssuredIM
Funds) in equity in earnings of investees.
Insurance Segment
Results
(in millions)
Quarter Ended
December 31,
2021
2020
Segment revenues
Net earned premiums and credit derivative
revenues
$
111
$
159
Net investment income
67
70
Other income (loss)
4
14
Total segment revenues
182
243
Segment expenses
Loss expense (benefit)
(161)
71
Amortization of deferred acquisition costs
(DAC)
4
5
Employee compensation and benefit
expenses
37
38
Other operating expenses
22
24
Total segment expenses
(98)
138
Equity in earnings of investees
44
24
Segment adjusted operating income
(loss) before income taxes
324
129
Less: Provision (benefit) for income
taxes
47
20
Segment adjusted operating income
(loss)
$
277
$
109
Insurance segment adjusted operating income more than doubled to
$277 million in fourth quarter 2021, from $109 million in the
three-month period ended December 31, 2020 (fourth quarter
2020).
The increase in Insurance segment adjusted operating income was
mainly due to the reduction in expected losses on Puerto Rico
exposures in fourth quarter 2021. Loss expense in fourth quarter
2020 was primarily attributable to increases in expected losses on
Puerto Rico exposures.
Insurance Segment
Loss Expense (Benefit)
(in millions)
Quarter Ended
December 31,
2021
2020
U.S. public finance
$
(153)
$
72
U.S. residential mortgage-backed
securities (RMBS)
(16)
(4)
Other
8
3
Total
$
(161)
$
71
Loss expense (benefit) is based on economic loss development
(benefit) which was a benefit of $186 million in fourth quarter
2021. In fourth quarter 2021, the Company sold a portion of its
salvage and subrogation recoverable asset associated with certain
matured Puerto Rico General Obligation and Puerto Rico Electric
Power Authority exposures on which the Company had previously paid
claims. This sale resulted in proceeds of $383 million, which is
included in “net (paid) recovered losses” in the table below. The
Company has continued to make such sales, and received an
additional $133 million in proceeds in connection with additional
such sales in 2022 through February 18, 2022. Also in fourth
quarter 2021, the Company increased its assumptions for the value
of the remaining contingent value instruments (CVIs) and recovery
bonds to be received under the settlement agreements.
Roll Forward of Net Expected
Loss to be Paid (Recovered)(1)
(in millions)
Net Expected Loss to be Paid
(Recovered) as of September 30, 2021
Economic Loss Development
(Benefit) (2)
Net (Paid) Recovered
Losses
Net Expected Loss to be Paid
(Recovered) as of December 31, 2021
Public finance
$
10
$
(176)
$
375
$
209
U.S. RMBS
142
(18)
26
150
Other structured finance
47
8
(3)
52
Total
$
199
$
(186)
$
398
$
411
(1)
Economic loss development (benefit)
represents the change in net expected loss to be (paid) recovered
attributable to the effects of 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. 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,
whether written in insurance or credit derivative form, regardless
of the accounting model prescribed under accounting principles
generally accepted in the United States of America (GAAP).
(2)
The economic development attributable to
changes in discount rates was a loss of $1 million in fourth
quarter 2021.
Total income generated by the investment portfolio was also
higher in fourth quarter 2021 compared with fourth quarter 2020, as
shown below.
Insurance Segment
Income from Investment
Portfolio
(in millions)
Quarter Ended
December 31,
2021
2020
Net investment income
$
67
$
70
Equity in earnings of investees:
AssuredIM Funds
10
13
Other alternative investments
34
11
Total
$
111
$
94
AssuredIM Funds and other alternative investments generated
gains of $44 million in fourth quarter 2021 compared with $24
million in fourth quarter 2020. The increase in equity in earnings
was mainly attributable to a large fair value gain on a specific
investment in a private equity fund. Equity in earnings of
AssuredIM Funds was $10 million in fourth quarter 2021 and was
primarily attributable to higher valuations of assets held in the
asset-based fund that was launched in the third quarter of 2021.
Equity in earnings of AssuredIM Funds was $13 million in fourth
quarter 2020 and mainly consisted of earnings in CLO funds, a
healthcare fund that was launched in fourth quarter 2020, and the
municipal bond fund.
The Insurance segment is authorized to invest up to $750 million
in AssuredIM Funds. As of December 31, 2021, the Insurance segment
had total commitments to AssuredIM Funds of $702 million, of which
$458 million represented net invested capital and $244 million was
undrawn. The Insurance segment's interest in AssuredIM Funds was
valued at $543 million as of December 31, 2021.
In the Insurance segment, investments in AssuredIM Funds are
recorded at net asset value (NAV), with the change in NAV reported
in “equity in earnings of investees.” The AssuredIM Funds include
healthcare, CLOs, municipal bond and asset-based funds. Equity in
earnings of investees also includes the Company's proportionate
interests in other alternative investments. To the extent
additional fixed-maturity securities are shifted to AssuredIM Funds
and other alternative investments, income will also shift from net
investment income to equity in earnings of investees.
The benefit of reduced losses in Puerto Rico exposures and
higher total investment earnings were partially offset by lower net
earned premiums and credit derivative revenues in fourth quarter
2021 of $111 million, compared with $159 million in fourth quarter
2020, which were primarily due to the decline in refundings and
terminations as shown below.
Insurance Segment
Net Earned Premiums and Credit
Derivative Revenues
(in millions)
Quarter Ended
December 31,
2021
2020
Scheduled net earned premiums and credit
derivative revenues
$
91
$
94
Accelerations
20
65
Total
$
111
$
159
New Business Production
GWP relates to both financial guaranty and specialty insurance
and reinsurance contracts. Financial guaranty insurance and
reinsurance GWP includes: (1) amounts collected upfront on new
business written, (2) the present value of future contractual or
expected premiums on new business written (discounted at risk-free
rates), and (3) the effects of changes in the estimated lives of
certain transactions in the in-force book of business. Specialty
insurance and reinsurance GWP is recorded as premiums are due.
Credit derivatives are accounted for at fair value and therefore
are not included in GWP.
The non-GAAP financial measure, PVP, includes upfront premiums
and the present value of expected future installments on new
business at the time of issuance, discounted at the approximate
average pre-tax book yield of fixed-maturity securities purchased
during the prior calendar year, for all contracts whether in
insurance or credit derivative form. See “Explanation of Non-GAAP
Financial Measures” at the end of this press release.
Insurance Segment
New Business
Production
(in millions)
Quarter Ended December
31,
2021
2020
GWP
PVP (1)
Gross Par Written (1)
GWP
PVP (1)
Gross Par Written (1)
Public finance - U.S.
$
71
$
70
$
5,947
$
112
$
110
$
6,343
Public finance - non-U.S.
19
16
—
(1)
9
—
Structured finance - U.S.
8
10
375
8
5
192
Structured finance - non-U.S.
2
2
164
1
2
253
Total (2)
$
100
$
98
$
6,486
$
120
$
126
$
6,788
(1)
PVP and Gross Par Written in the table
above are based on “close date,” when the transaction settles.
Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release.
(2)
While PVP includes the present value of
only the premiums the Company estimates it will receive over the
expected term of the transaction, under GAAP the Company is
required, for certain transactions, to include contractual premiums
through the date of legal maturity in GWP.
U.S. public finance GWP and PVP in fourth quarter 2021, was
lower than the comparable GWP and PVP in fourth quarter 2020,
primarily due to reduced average premium rates in 2021 due to
tighter credit spreads. The average rating of U.S. public finance
par written was A- in fourth quarter 2021, which is consistent with
the average rating in fourth quarter 2020. The Company's direct par
written represented 61% of the total U.S. municipal market insured
issuance in fourth quarter 2021, compared with 54% in fourth
quarter 2020, and the Company’s penetration of all municipal
issuance increased to 4.6% in fourth quarter 2021 from 3.8% in
fourth quarter 2020.
In fourth quarter 2021, non-U.S. public finance GWP and PVP were
primarily attributable to the restructuring of several existing
transactions that resulted in additional GPW and PVP, without an
increase in gross par. Fourth quarter 2021 structured finance GWP
and PVP were primarily attributable to insurance securitization
transactions and European pooled corporate obligations.
Asset Management Segment
The Asset Management segment consists of AssuredIM, which
provides asset management services to third party investors as well
as to the Insurance segment.
Asset Management Segment
Results
(in millions)
Quarter Ended
December 31,
2021
2020
Segment revenues
Management fees:
CLOs (1)
$
12
$
11
Opportunity funds and liquid
strategies
7
4
Wind-down funds
2
4
Total management fees
21
19
Performance fees
—
1
Other income (loss)
2
2
Total segment revenues
23
22
Segment expenses
Employee compensation and benefit
expenses
14
16
Interest expense
1
—
Other operating expenses (2)
11
31
Total segment expenses
26
47
Segment adjusted operating income
(loss) before income taxes
(3)
(25)
Less: Provision (benefit) for income
taxes
—
(5)
Segment adjusted operating income
(loss)
$
(3)
$
(20)
(1)
CLO fees are the net management fees that
AssuredIM retains after rebating the portion of these fees that
pertains to the CLO equity that is held directly by AssuredIM
Funds.
(2)
Includes amortization of intangible assets
of $3 million in fourth quarter 2021 and $4 million in fourth
quarter 2020. Fourth quarter 2020 includes a $13 million impairment
of a lease right-of-use asset.
Asset Management segment adjusted operating loss was $3 million
for fourth quarter 2021, compared with $20 million for fourth
quarter 2020. The improvement in Asset Management segment results
is primarily attributable to an impairment of a lease right-of-use
asset of $13 million in fourth quarter 2020, that did not recur in
fourth quarter 2021, lower placement fees, and higher management
fees.
The increase in management fees in fourth quarter 2021 compared
with fourth quarter 2020 is primarily due to higher fees from
healthcare opportunity funds launched at the end of 2020, which
more than offset the decrease in fees from wind-down funds as
distributions to investors continued. As of December 31, 2021, AUM
of the wind-down funds was $582 million, compared with $1.6 billion
as of December 31, 2020.
Roll Forward of
Assets Under
Management
(in millions)
CLOs
Opportunity Funds
Liquid Strategies
Wind-Down Funds
Total
AUM, September 30, 2021
$
14,746
$
1,634
$
388
$
809
$
17,577
Inflows - third party
797
92
—
—
889
Inflows - intercompany
61
—
—
—
61
Outflows:
Redemptions
—
—
—
—
—
Distributions (1)
(836)
(61)
—
(226)
(1,123)
Total outflows
(836)
(61)
—
(226)
(1,123)
Net flows
22
31
—
(226)
(173)
Change in fund value
(69)
159
1
(1)
90
AUM, December 31, 2021
$
14,699
$
1,824
$
389
$
582
$
17,494
(1)
Distributions from opportunity funds
include $27 million related to the AssuredIM Funds created prior to
the acquisition of BlueMountain Capital Management, LLC
(BlueMountain, now known as Assured Investment Management LLC).
Corporate Division
The Corporate division primarily consists of interest expense on
the debt of Assured Guaranty US Holdings Inc. (AGUS) and Assured
Guaranty Municipal Holdings Inc. (AGMH), as well as other operating
expenses attributed to holding company activities.
Corporate Division
Results
(in millions)
Quarter Ended
December 31,
2021
2020
Revenues
$
1
$
1
Expenses
Interest expense
22
23
Employee compensation and benefit
expenses
6
7
Other operating expenses
5
3
Total expenses
33
33
Equity in earnings of investees
(1)
(1)
Adjusted operating income (loss) before
income taxes
(33)
(33)
Less: Provision (benefit) for income
taxes
(2)
(5)
Adjusted operating income
(loss)
$
(31)
$
(28)
Other (Effect of FG VIE and CIV consolidation)
The effect of consolidating FG VIEs and CIVs in fourth quarter
2021 was an after-tax gain of $30 million compared with an
after-tax loss of $5 million in fourth quarter 2020. In fourth
quarter 2021, the Company consolidated an AssuredIM healthcare fund
that resulted in a $31 million pre-tax gain on consolidation.
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
December 31,
2021
2020
Total
Per Diluted Share
Total
Per Diluted Share
Net income (loss) attributable to
AGL
$
263
$
3.74
$
148
$
1.82
Less pre-tax adjustments:
Realized gains (losses) on investments
11
0.16
6
0.08
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
(23)
(0.32)
59
0.72
Fair value gains (losses) on committed
capital securities (CCS)
—
(0.01)
(14)
(0.17)
Foreign exchange gains (losses) on
remeasurement of premiums receivable and loss and loss adjustment
expense (LAE) reserves (1)
—
—
57
0.71
Total pre-tax adjustments
(12)
(0.17)
108
1.34
Less tax effect on pre-tax adjustments
2
0.03
(16)
(0.21)
Adjusted operating income (loss)
$
273
$
3.88
$
56
$
0.69
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income
$
30
$
0.43
$
(5)
$
(0.06)
(1)
Foreign exchange gains primarily relate to
remeasurement of premiums receivable and are mainly due to changes
in the exchange rate of the pound sterling and euro relative to the
U.S. dollar.
Non-credit impairment-related unrealized fair value losses on
credit derivatives in fourth quarter 2021 primarily related to a
decrease in the Company’s own credit spreads. Non-credit
impairment-related fair value gains on credit derivatives in fourth
quarter 2020 related primarily to a general tightening in
collateral 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 losses on CCS in fourth quarter 2021 were de minimis,
while fair value losses on CCS in fourth quarter 2020 related
primarily to a tightening in market spreads during the period. 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.
Full Year 2021
Insurance Segment
Insurance Segment
Results
(in millions)
Year Ended
December 31,
2021
2020
Segment revenues
Net earned premiums and credit derivative
revenues
$
438
$
504
Net investment income
280
310
Commutation gains (losses)
—
38
Other income (loss)
15
22
Total segment revenues
733
874
Segment expenses
Loss expense (benefit)
(221)
204
Amortization of DAC
14
16
Employee compensation and benefit
expenses
142
143
Write-off of Municipal Assurance Corp.
(MAC) insurance licenses
16
—
Other operating expenses
82
83
Total segment expenses
33
446
Equity in earnings of investees
144
61
Segment adjusted operating income
(loss) before income taxes
844
489
Less: Provision (benefit) for income
taxes
122
60
Segment adjusted operating income
(loss)
$
722
$
429
Insurance segment adjusted operating income for FY 2021 was $722
million, compared with $429 million for the year ended December 31,
2020 (FY 2020). The increase was mainly due to the reduction in
expected losses on Puerto Rico exposures in fourth quarter 2021,
and higher earnings from the alternative investment portfolio,
partially offset by lower net earned premiums and credit derivative
revenues. The table below presents the components of loss expense
(benefit) included in Insurance segment adjusted operating
income.
Insurance Segment
Loss Expense (Benefit)
(in millions)
Year Ended
December 31,
2021
2020
U.S. public finance
$
(146)
$
225
U.S. RMBS
(84)
(36)
Other
9
15
Total
$
(221)
$
204
Loss expense (benefit) is based on economic loss development
(benefit), which was an economic benefit of $287 million in FY
2021. The economic benefit for public finance transactions was $204
million primarily due to Puerto Rico exposures. In fourth quarter
2021, the Company sold a portion of its salvage and subrogation
recoverable asset associated with certain matured Puerto Rico
General Obligation and Puerto Rico Electric Power Authority
exposures on which the Company had previously paid claims. This
sale resulted in proceeds of $383 million, which is included in
“net (paid) recovered losses.” Also in fourth quarter 2021, the
Company increased its assumptions for the value of the remaining
CVIs and recovery bonds to be received under the settlement
agreements. During 2021, the Company also incorporated refinements
in certain terms of the Puerto Rico support agreements. The U.S.
RMBS economic benefit of $100 million was primarily attributable to
higher projected recoveries on charged-off second lien loans,
improved performance of certain transactions, the implementation of
a recovery assumption on certain deferred principal balances in
first lien loans and changes in discount rates, which were all
partially offset by lower excess spread.
Roll Forward of Net Expected
Loss to be Paid (Recovered)
(in millions)
Net Expected Loss to be Paid
(Recovered) as of December 31, 2020
Economic Loss Development
(Benefit) (1)
Net (Paid) Recovered
Losses
Net Expected Loss to be Paid
(Recovered) as of December 31, 2021
Public finance
$
341
$
(204)
$
72
$
209
U.S. RMBS
148
(100)
102
150
Other structured finance
40
17
(5)
52
Total
$
529
$
(287)
$
169
$
411
(1)
The economic development attributable to
changes in discount rates was a benefit of $33 million in FY
2021.
The table below presents the components of income generated by
the investment portfolio.
Insurance Segment
Income from Investment
Portfolio
(in millions)
Year Ended
December 31,
2021
2020
Net investment income
$
280
$
310
Equity in earnings of investees:
AssuredIM Funds
80
42
Other
64
19
Total
$
424
$
371
The total income from the investment portfolio increased due to
earnings from alternative investments including investments in
AssuredIM Funds, partially offset by lower investment income
primarily due to lower average balances in the fixed-maturity
investment portfolio, lower reinvestment yields and lower income on
loss mitigation securities.
Equity in earnings of AssuredIM Funds in FY 2021 was primarily
attributable to higher valuations of assets held in: (i) the
healthcare fund that opened at the end of 2020; (ii) CLO funds; and
(iii) the asset-based fund that was launched in the third quarter
of 2021. Healthcare fund performance was driven by improved
financial projections for a number of the portfolio companies as
well as upward movement in the traded market multiples of
comparable public companies. The CLO funds’ performance was driven
by continued tightening of credit spreads. Asset-based fund
performance was driven by an improved financial outlook and
increases in the market multiples of comparable public companies.
In addition, other alternative investments generated gains of $64
million in FY 2021 compared with $19 million in FY 2020 primarily
due to a large fair value gain on a specific investment in a
private equity fund.
The benefit from the Puerto Rico and U.S. RMBS portfolios and
total investment earnings were partially offset by lower net earned
premiums and credit derivative revenues in FY 2021 of $438 million
compared with $504 million in FY 2020, as shown in the table below,
and a commutation gain of $38 million in FY 2020 that did not recur
in 2021.
Insurance Segment
Net Earned Premiums and Credit
Derivative Revenues
(in millions)
Year Ended
December 31,
2021
2020
Scheduled net earned premiums and credit
derivative revenues
$
372
$
374
Accelerations
66
130
Total
$
438
$
504
New Business Production
Insurance Segment
New Business
Production
(in millions)
Year Ended December
31,
2021
2020
GWP
PVP (1)
Gross Par Written
GWP
PVP (1)
Gross Par Written
Public finance - U.S.
$
231
$
235
$
23,793
$
294
$
292
$
21,198
Public finance - non-U.S.
89
79
1,117
142
82
1,434
Structured finance - U.S.
51
42
1,316
18
14
380
Structured finance - non-U.S.
6
5
430
—
2
253
Total
$
377
$
361
$
26,656
$
454
$
390
$
23,265
(1)
Please see “Explanation of Non-GAAP
Financial Measures” at the end of this press release.
Direct U.S. public finance GWP and PVP decreased in FY 2021 to
$220 million and $224 million, respectively, compared with $294
million and $292 million in direct GWP and PVP, respectively, in FY
2020, primarily due to reduced average premium rates in 2021 due to
tighter credit spreads. The onset of the COVID-19 pandemic in the
first half of 2020 generated an increase in demand for insurance
(particularly in the secondary market), and attractive pricing
opportunities which were not replicated in 2021 as markets
stabilized. The Company's direct par written represented 60% of the
total U.S. municipal market insured issuance in FY 2021, compared
with 58% in FY 2020, and the Company’s penetration of all municipal
issuance increased to 5.0% in FY 2021 from 4.4% in FY 2020.
The Company also assumed U.S. public finance transactions with
$833 million in par outstanding in the third quarter of 2021, which
generated GWP and PVP of $11 million.
In FY 2021, non-U.S. public finance GWP and PVP included the
restructuring of several existing transactions that resulted in
additional GWP and PVP, without an increase in gross par, and
several large transactions including a large United Kingdom (U.K.)
university housing transaction, a U.K. hospital transaction and a
renewable energy transaction. Non-U.S public finance GWP and PVP
decreased 37% and 4%, respectively. Excluding amounts relating to
one large long-dated policy written in 2020, for which GWP includes
the present value of all contractual future premiums, while PVP
includes the present value of only expected future premiums,
non-U.S. public finance GWP and PVP increased 6% and 5%,
respectively.
FY 2021 structured finance GWP and PVP were primarily
attributable to large insurance securitization transactions and
European pooled corporate obligations.
Asset Management Segment
Asset Management Segment
Results
(in millions)
Year Ended
December 31,
2021
2020
Segment revenues
Management fees:
CLOs (1)
$
48
$
23
Opportunity funds and liquid
strategies
20
11
Wind-down funds
8
25
Total management fees
76
59
Performance fees
1
1
Other income (loss)
6
6
Total segment revenues
83
66
Segment expenses
Employee compensation and benefit
expenses
67
67
Interest expense
1
—
Other operating expenses (2)
40
61
Total segment expenses
108
128
Segment adjusted operating income
(loss) before income taxes
(25)
(62)
Less: Provision (benefit) for income
taxes
(6)
(12)
Segment adjusted operating income
(loss)
$
(19)
$
(50)
(1)
CLO fees are the net management fees that
AssuredIM retains after rebating the portion of these fees that
pertains to the CLO equity that is held directly by AssuredIM
Funds.
(2)
Includes amortization of intangible assets
of $12 million in FY 2021 and $13 million in FY 2020. FY 2020
includes a $13 million impairment of a lease right-of-use
asset.
Asset Management segment adjusted operating loss was $19 million
for FY 2021, compared with $50 million for FY 2020. The improvement
in Asset Management segment results is primarily attributable to
(i) an increase in CLO and opportunity fund management fees, which
more than offset the decline in management fees from wind-down
funds; and (ii) expense reductions that were mainly due to an
impairment of a lease right-of-use asset of $13 million in fourth
quarter 2020, that did not recur in 2021, and lower placement
fees.
CLO fees increased as a result of (i) higher fee-earning CLO AUM
over the course of 2021, compared with FY 2020; and (ii) the
deferral of CLO fees in FY 2020 that did not recur in FY 2021. CLO
fee-earning AUM was $14.3 billion, or 97%, of total CLO AUM as of
December 31, 2021, compared with $10.2 billion, or 74%, of total
CLO AUM as of December 31, 2020. The increase in fee-earning CLO
AUM was primarily due to the sale to third parties of CLO equity
from legacy funds, and the issuance of new CLOs. As of December 31,
2021, substantially all of the CLO equity held by legacy funds has
been sold to third parties, which ends the fee rebates made back to
these funds. In addition, the COVID-19 pandemic and downgrades in
loan markets had triggered over-collateralization provisions in
CLOs in the second and third quarters of 2020, resulting in the
deferral of CLO management fees, which began to recover in the
second half of 2020 and the first half of 2021. As of December 31,
2021, there were no CLOs triggering over-collateralization
provisions.
Fees from opportunity funds increased primarily due to a full
year of management fees earned on the healthcare fund launched at
the end of 2020.
In addition to the Asset Management segment results described
above, AssuredIM has improved the risk-adjusted return on a portion
of the Insurance segment’s investment portfolio, generating $80
million in gains on the AssuredIM Funds in the Insurance segment as
described above.
Roll Forward of
Assets Under
Management
(in millions)
CLOs
Opportunity Funds
Liquid Strategies
Wind-Down Funds
Total
AUM, December 31, 2020
$
13,856
$
1,486
$
383
$
1,623
$
17,348
Inflows - third party
2,608
363
—
—
2,971
Inflows - intercompany
227
16
—
—
243
Outflows:
Redemptions
—
—
—
—
—
Distributions (1)
(1,843)
(509)
—
(1,017)
(3,369)
Total outflows
(1,843)
(509)
—
(1,017)
(3,369)
Net flows
992
(130)
—
(1,017)
(155)
Change in fund value
(149)
468
6
(24)
301
AUM, December 31, 2021
$
14,699
$
1,824
$
389
$
582
$
17,494
(1)
Distributions from opportunity funds
include $286 million related to the AssuredIM Funds created prior
to the acquisition of BlueMountain.
Components of
Assets Under Management
(1)
(in millions)
As of
December 31, 2021
December 31, 2020
Funded AUM
$
16,821
$
16,785
Unfunded AUM
673
563
Fee earning AUM
$
16,576
$
12,940
Non-fee Earning AUM
918
4,408
Intercompany AUM
Funded AUM (2)
$
1,126
$
893
Unfunded AUM
244
177
(1)
Please see “Definitions” at the end of
this press release.
(2)
Includes assets managed by AssuredIM under
an Investment Management Agreement with its insurance affiliates of
$574 million in investment-grade CLO and liquid municipal
strategies as of December 31, 2021 and of $562 million as of
December 31, 2020.
Corporate Division
Corporate Division
Results
(in millions)
Year Ended
December 31,
2021
2020
Revenues
$
2
$
9
Expenses
Interest expense
96
95
Loss on extinguishment of debt
175
—
Employee compensation and benefit
expenses
21
18
Other operating expenses
20
19
Total expenses
312
132
Equity in earnings of investees
—
(6)
Adjusted operating income (loss) before
income taxes
(310)
(129)
Less: Provision (benefit) for income
taxes
(47)
(18)
Adjusted operating income
(loss)
$
(263)
$
(111)
In 2021 AGUS issued $500 million of 3.15% Senior Notes due in
2031, and $400 million of 3.6% Senior Notes due in 2051.
On July 9, 2021, a portion of the proceeds from the issuance of
the 3.15% Senior Notes was used to redeem $200 million of AGMH debt
as follows: all $100 million of AGMH's 6 7/8% Quarterly Interest
Bonds due in 2101, and $100 million of the $230 million of AGMH's
6.25% Notes due in 2102.
On September 27, 2021, all of the proceeds from the issuance of
the 3.6% Senior Notes were used to redeem $400 million of AGMH and
AGUS debt as follows: all $100 million of AGMH's 5.60% Notes due in
2103, the remaining $130 million of AGMH 6.25% Notes due in 2102,
and $170 million of the $500 million of AGUS 5% Senior Notes due in
2024.
In FY 2021, as a result of these redemptions, the Company
recognized a loss on extinguishment of debt of approximately $175
million on a pre-tax basis ($138 million after-tax) which
represents the difference between the amount paid to redeem the
debt and the carrying value of the debt. The loss on extinguishment
of debt primarily consisted of a $156 million acceleration of
unamortized fair value adjustments that were originally recorded
upon the acquisition of AGMH in 2009, and a $19 million make-whole
payment associated with the redemption of $170 million of AGUS 5%
Senior Notes. The unamortized fair value adjustments of $156
million that were included in the loss on extinguishment of debt
represented a non-cash expense that, had the corresponding debt
obligations not been redeemed, would have been recognized as
interest expense over the remaining 80+ year terms of those
obligations.
Other (Effect of FG VIE and CIV consolidation)
The effect of consolidating FG VIEs and CIVs in FY 2021 was an
after-tax gain of $30 million compared with a after-tax loss of $12
million in FY 2020. In FY 2021, the Company consolidated an
AssuredIM healthcare fund that resulted in a $31 million pre-tax
gain on consolidation.
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)
Year Ended
December 31,
2021
2020
Total
Per Diluted Share
Total
Per Diluted Share
Net income (loss) attributable to
AGL
$
389
$
5.23
$
362
$
4.19
Less pre-tax adjustments:
Realized gains (losses) on investments
15
0.20
18
0.21
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
(64)
(0.85)
65
0.75
Fair value gains (losses) on CCS
(28)
(0.38)
(1)
(0.01)
Foreign exchange gains (losses) on
remeasurement of premiums receivable and loss and LAE reserves
(1)
(21)
(0.29)
42
0.49
Total pre-tax adjustments
(98)
(1.32)
124
1.44
Less tax effect on pre-tax adjustments
17
0.23
(18)
(0.22)
Adjusted operating income (loss)
$
470
$
6.32
$
256
$
2.97
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income
$
30
$
0.41
$
(12)
$
(0.14)
(1)
Foreign exchange gains and losses in all
periods primarily relate to remeasurement of premiums receivable
and are mainly due to changes in the exchange rate of the pound
sterling and euro relative to the U.S. dollar.
Non-credit impairment-related fair value losses on credit
derivatives in FY 2021 primarily related to the lower cost to buy
protection on the Company's name. Non-credit impairment-related
fair value gains on credit derivatives in FY 2020 primarily related
to the increased cost to buy protection on the Company's name.
Fair value losses on CCS in FY 2021 were primarily driven by
tightened market spreads during the year. Fair value losses on CCS
in FY 2020 were primarily due to a steep reduction in London
Interbank Offered Rate, which was partially offset by widened
market spreads.
Common Share Repurchases
Summary of Share
Repurchases
(in millions, except per share
amounts)
Amount
Number of Shares
Average Price Per
Share
2021 (January 1 - March 31)
$
77.1
1.99
$
38.83
2021 (April 1 - June 30)
88.0
1.89
46.63
2021 (July 1 - September 30)
139.4
2.92
47.76
2021 (October 1 - December 31)
191.8
3.72
51.47
Total 2021
$
496.3
10.52
47.19
2022 (January 1 - February 24)
$
91.4
1.68
$
54.32
From 2013 through February 24, 2022, the Company has repurchased
133.7 million common shares at an average price of $31.78,
representing approximately 69% of the total shares outstanding at
the beginning of the repurchase program in 2013. In 2021 the
Company repurchased 10.5 million shares or approximately 14% of
shares outstanding at the beginning of 2021. On February 23, 2022,
the Board of Directors authorized the repurchase of an additional
$350 million of common shares. Under this and previous
authorizations, as of February 24, 2022, the Company was authorized
to purchase $364 million of its common shares. These repurchases
can be made from time to time in the open market or in privately
negotiated transactions.
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, some of which factors may be impacted by the direct and
indirect consequences of the course and duration of the COVID-19
pandemic and evolving governmental and private responses to the
pandemic. 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
Consolidated Statements of
Operations (unaudited)
(in millions)
Quarter Ended
Year Ended
December 31,
December 31,
2021
2020
2021
2020
Revenues
Net earned premiums
$
107
$
154
$
414
$
485
Net investment income
65
68
269
297
Asset management fees
23
29
88
89
Net realized investment gains (losses)
11
6
15
18
Fair value gains (losses) on credit
derivatives
(27)
61
(58)
81
Fair value gains (losses) on CCS
—
(14)
(28)
(1)
Fair value gains (losses) on FG VIEs
5
(2)
23
(10)
Fair value gains (losses) on CIVs
74
4
127
41
Foreign exchange gains (losses) on
remeasurement
(1)
59
(23)
39
Commutation gains (losses)
—
—
—
38
Other income (loss)
6
14
21
38
Total revenues
263
379
848
1,115
Expenses
Loss and LAE (benefit)
(166)
73
(220)
203
Interest expense
20
21
87
85
Loss on extinguishment of debt
—
—
175
—
Amortization of DAC
4
5
14
16
Employee compensation and benefit
expenses
57
61
230
228
Other operating expenses
44
69
179
197
Total expenses
(41)
229
465
729
Income (loss) before income taxes and
equity in earnings of investees
304
150
383
386
Equity in earnings of investees
28
24
94
27
Income (loss) before income
taxes
332
174
477
413
Less: Provision (benefit) for income
taxes
50
25
58
45
Net income (loss)
282
149
419
368
Less: Noncontrolling interests
19
1
30
6
Net income (loss) attributable to
AGL
$
263
$
148
$
389
$
362
Consolidated Balance Sheets
(unaudited)
(in millions)
As of
December 31, 2021
December 31, 2020
Assets
Investments:
Fixed-maturity securities,
available-for-sale, at fair value
$
8,202
$
8,773
Short-term investments, at fair value
1,225
851
Other invested assets
181
214
Total investments
9,608
9,838
Cash
120
162
Premiums receivable, net of commissions
payable
1,372
1,372
DAC
131
119
Salvage and subrogation recoverable
801
991
FG VIEs’ assets, at fair value
260
296
Assets of CIVs
5,271
1,913
Goodwill and other intangible assets
175
203
Other assets
470
440
Total assets
$
18,208
$
15,334
Liabilities
Unearned premium reserve
$
3,716
$
3,735
Loss and LAE reserve
869
1,088
Long-term debt
1,673
1,224
Credit derivative liabilities, at fair
value
156
103
FG VIEs’ liabilities, at fair value
289
333
Liabilities of CIVs
4,436
1,590
Other liabilities
569
556
Total liabilities
11,708
8,629
Redeemable noncontrolling
interests
22
21
Shareholders' equity
Common shares
1
1
Retained earnings
5,990
6,143
Accumulated other comprehensive income
300
498
Deferred equity compensation
1
1
Total shareholders' equity attributable
to AGL
6,292
6,643
Nonredeemable noncontrolling interests
186
41
Total shareholders' equity
6,478
6,684
Total liabilities, redeemable
noncontrolling interests and shareholders’ equity
$
18,208
$
15,334
Explanation of Non-GAAP Financial Measures
The Company discloses both: (a) financial measures determined in
accordance with GAAP; and (b) 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 and which are managed
by AssuredIM.
The Company provides 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 of each of the consolidated FG VIEs and CIVs is
reflected primarily in the results of the Insurance segment.
Management and the Board of Directors use non-GAAP financial
measures further adjusted to remove the effect of VIE 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 core 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) growth in adjusted book value per
share, further adjusted to remove the effect of FG VIE and CIV
consolidation; (4) PVP, and (5) gross third-party assets
raised.
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) (excluding foreign
exchange remeasurement). 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 should 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 for FG VIE
and CIV consolidation, to measure the intrinsic value of the
Company, excluding franchise value. Growth in 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 GAAP
Shareholders' Equity attributable to AGL to
Adjusted Operating
Shareholders' Equity and ABV
(in millions, except per share
amounts)
As of
December 31, 2021
December 31, 2020
Total
Per Share
Total
Per Share
Shareholders' equity attributable to
AGL
$
6,292
93.19
$
6,643
85.66
Less pre-tax adjustments:
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
(54)
(0.80)
9
0.12
Fair value gains (losses) on CCS
23
0.34
52
0.66
Unrealized gain (loss) on investment
portfolio excluding foreign exchange effect
404
5.99
611
7.89
Less taxes
(72)
(1.07)
(116)
(1.50)
Adjusted operating shareholders'
equity
5,991
88.73
6,087
78.49
Pre-tax adjustments:
Less: Deferred acquisition costs
131
1.95
119
1.54
Plus: Net present value of estimated net
future revenue
160
2.37
182
2.35
Plus: Net unearned premium reserve on
financial guaranty contracts in excess of expected loss to be
expensed
3,402
50.40
3,355
43.27
Plus taxes
(599)
(8.88)
(597)
(7.70)
ABV
$
8,823
130.67
$
8,908
114.87
Gain (loss) related to FG VIE and CIV
consolidation included in:
Adjusted operating shareholders'
equity
$
32
$
0.47
$
2
$
0.03
ABV
23
0.34
(8)
(0.10)
Shares outstanding at the end of the
period
67.5
77.5
Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because
it enables an evaluation of the value of the present value of
estimated net future revenue for contracts other than financial
guaranty insurance contracts (such as specialty insurance and
reinsurance contracts and credit derivatives). 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 for
the Company 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 premium 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), whether in insurance or credit
derivative contract 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 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 December 31,
2021
Public Finance
Structured Finance
U.S.
Non-U.S.
U.S.
Non-U.S.
Total
GWP
$
71
$
19
$
8
$
2
$
100
Less: Installment GWP and other GAAP
adjustments (1)
10
16
5
2
33
Upfront GWP
61
3
3
—
67
Plus: Installment premium PVP
9
13
7
2
31
PVP
$
70
$
16
$
10
$
2
$
98
Quarter Ended December 31,
2020
Public Finance
Structured Finance
U.S.
Non-U.S.
U.S.
Non-U.S.
Total
GWP
$
112
$
(1)
$
8
$
1
$
120
Less: Installment GWP and other GAAP
adjustments(1)
33
(2)
7
1
39
Upfront GWP
79
1
1
—
81
Plus: Installment premium PVP
31
8
4
2
45
PVP
$
110
$
9
$
5
$
2
$
126
Year Ended December 31,
2021
Public Finance
Structured Finance
U.S.
Non-U.S.
U.S.
Non-U.S.
Total
GWP
$
231
$
89
$
51
$
6
$
377
Less: Installment GWP and other GAAP
adjustments(1)
43
65
44
6
158
Upfront GWP
188
24
7
—
219
Plus: Installment premium PVP
47
55
35
5
142
PVP
$
235
$
79
$
42
$
5
$
361
Year Ended December 31,
2020
Public Finance
Structured Finance
U.S.
Non-U.S.
U.S.
Non-U.S.
Total
GWP
$
294
$
142
$
18
$
—
$
454
Less: Installment GWP and other GAAP
adjustments(1)
33
141
17
—
191
Upfront GWP
261
1
1
—
263
Plus: Installment premium PVP
31
81
13
2
127
PVP
$
292
$
82
$
14
$
2
$
390
(1)
Includes 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.
AUM Definitions
The Company uses AUM as a metric to measure progress in its
Asset Management segment. Management fee revenue is based on a
variety of factors and is not perfectly correlated with AUM.
However, the Company believes that AUM is a useful metric for
assessing the relative size and scope of our asset management
business. The Company uses measures of its AUM in its
decision-making process and intends to use a measure of change in
AUM in its calculation of certain components of management
compensation. Investors also use AUM to evaluate companies that
participate in the asset management business. AUM refers to the
assets managed, advised or serviced by the Asset Management segment
and equals the sum of the following:
- the amount of aggregate collateral balance and principal cash
of AssuredIM’s CLOs, including CLO Equity that may be held by
AssuredIM Funds. This also includes CLO assets managed by
BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a
third party in the second quarter of 2021. AssuredIM is not the
investment manager of BM Fuji-advised CLOs, but following the sale,
AssuredIM sub-advises and continues to provide personnel and other
services to BM Fuji associated with the management of BM
Fuji-advised CLOs pursuant to a sub-advisory agreement and a
personnel and services agreement, consistent with past practices;
and
- the net asset value of all funds and accounts other than CLOs,
plus any unfunded commitments. Changes in NAV attributable to
movements in fund value of certain private equity funds are
reported on a quarter lag.
The Company’s calculation of AUM may differ from the calculation
employed by other investment managers and, as a result, this
measure may not be directly comparable to similar measures
presented by other investment managers. The calculation also
differs from the manner in which AssuredIM affiliates registered
with the SEC report “Regulatory Assets Under Management” on Form
ADV and Form PF in various ways.
The Company also uses several other measurements of AUM to
understand and measure its AUM in more detail and for various
purposes, including its relative position in the market and its
income and income potential:
“Third-party AUM” refers to the assets AssuredIM manages or
advises on behalf of third-party investors. This includes current
and former employee investments in AssuredIM Funds. For CLOs, this
also includes CLO Equity that may be held by AssuredIM Funds.
“Intercompany AUM” refers to the assets AssuredIM manages or
advises on behalf of the Company. This includes investments from
affiliates of Assured Guaranty along with general partners’
investments of AssuredIM (or its affiliates) into the AssuredIM
Funds.
“Funded AUM” refers to assets that have been deployed or
invested into the funds or CLOs.
“Unfunded AUM” refers to unfunded capital commitments from
closed-end funds and CLO warehouse funds.
“Fee earning AUM” refers to assets where AssuredIM collects fees
and has elected not to waive or rebate fees to investors.
“Non-fee earning AUM” refers to assets where AssuredIM does not
collect fees or has elected to waive or rebate fees to investors.
AssuredIM reserves the right to waive some or all fees for certain
investors, including investors affiliated with AssuredIM and/or the
Company. Further, to the extent that the Company’s wind-down and/or
opportunity funds are invested in AssuredIM managed CLOs, AssuredIM
may rebate any management fees and/or performance fees earned from
the CLOs to the extent such fees are attributable to the wind-down
and opportunity funds’ holdings of CLOs also managed by
AssuredIM.
Conference Call and Webcast Information
The Company will host a conference call for investors at 8:00
a.m. Eastern Time (9:00 a.m. Atlantic Time) on Friday, February 25,
2022. The conference call will be available via live and archived
webcast in the Investor Information section of the Company's
website at AssuredGuaranty.com or by dialing 1-877-281-1545 (in the
U.S.) or 1-412-902-6609 (International). A replay of the call will
be made available through May 25, 2022. To listen to the replay,
dial 1-877-344-7529 (in the U.S.) or 1-412-317-0088
(International), passcode 7345917. The replay will be available one
hour after the conference call ends.
Please refer to Assured Guaranty's December 31, 2021 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 “December 31, 2021 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 4Q 2021,” which lists the U.S.
public finance new issues insured by the Company in fourth quarter
2021, and
- “Structured Finance Transactions at December 31, 2021,” 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 and also provides asset management services. 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. For example, Assured Guaranty's calculations of ABV,
PVP, net present value of estimated future installment premiums in
force and total estimated net future premium earnings and
statements regarding its capital position and demand for its
insurance and other forward-looking statements could be affected by
the development, course and duration of the COVID-19 pandemic and
the governmental and private actions taken in response, the
effectiveness, acceptance and distribution of COVID-19 vaccines and
therapeutics, and the global consequences of the pandemic and such
actions, including their impact on the factors listed below;
changes in the world’s credit markets, segments thereof, interest
rates, credit spreads or general economic conditions; developments
in the world’s financial and capital markets that adversely affect
insured obligors’ repayment rates, Assured Guaranty’s insurance
loss or recovery experience, investments of Assured Guaranty or
assets it manages; reduction in the amount of available insurance
opportunities and/or in the demand for Assured Guaranty's
insurance; the loss of investors in Assured Guaranty's asset
management strategies or the failure to attract new investors to
Assured Guaranty's asset management business; 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; insured
losses 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 failure to resolve Assured Guaranty's
Puerto Rico exposures in a manner substantially consistent with the
support agreements signed to date; increased competition, including
from new entrants into the financial guaranty industry; poor
performance of Assured Guaranty's asset management strategies
compared to the performance of the asset management strategies of
Assured Guaranty's competitors; 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 unanticipated
consequences; 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, most of its
financial guaranty contracts written in credit default swap form,
and certain consolidated variable interest entities; 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; the inability of Assured Guaranty to access external
sources of capital on acceptable terms; changes in applicable
accounting policies or practices; changes in applicable laws or
regulations, including insurance, bankruptcy and tax laws, or other
governmental actions; the failure of Assured Guaranty to
successfully integrate the business of BlueMountain Capital
Management, LLC (BlueMountain, now known as Assured Investment
Management LLC) and its associated entities; the possibility that
acquisitions made by Assured Guaranty, including its acquisition of
BlueMountain, do not result in the benefits anticipated or subject
Assured Guaranty to unanticipated consequences; difficulties with
the execution of Assured Guaranty’s business strategy; loss of key
personnel; the effects of mergers, acquisitions and divestitures;
natural or man-made catastrophes or pandemics; including
developments in eastern Europe; other risk factors identified in
AGL’s filings with the SEC; other risks and uncertainties that have
not been identified at this time; and 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 February 24, 2022, 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/20220223005777/en/
Robert Tucker Senior Managing Director, Investor Relations and
Corporate Communications 212-339-0861
rtucker@agltd.com
Ashweeta Durani Vice President, Corporate Communications
212-408-6042 adurani@agltd.com
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