- Puerto Rico Settlements:
- Reduced Puerto Rico net par outstanding by $1.3 billion, a 37%
reduction.
- The benefit to insurance segment adjusted operating income
associated with the exposures covered by the Puerto Rico
settlements was $63 million in first quarter 2022.
- GAAP Highlights: Net income attributable to Assured
Guaranty Ltd. was $66 million, or $0.98 per share(1), for first
quarter 2022. Shareholders’ equity attributable to Assured Guaranty
Ltd. per share was $89.20 as of March 31, 2022.
- Non-GAAP Highlights: Adjusted operating income(2) was
$90 million, or $1.34 per share, for first quarter 2022. Adjusted
operating shareholders’ equity(2) per share and adjusted book value
(ABV)(2) per share were $90.09 and $133.21, respectively, as of
March 31, 2022.
- Return of Capital to Shareholders: First quarter 2022
capital returned to shareholders was $172 million, including the
repurchase of 2.7 million shares for $155 million, and dividends of
$17 million. As of March 31, 2022, 65.0 million common shares were
outstanding.
- Insurance Segment:
- Insurance segment adjusted operating income was $133 million
for first quarter 2022.
- Gross written premiums (GWP) were $70 million for first quarter
2022.
- Present value of new business production (PVP)(2) was $69
million for first quarter 2022.
- Asset Management Segment
- Asset Management segment adjusted operating income was
break-even for first quarter 2022.
- Assets under management (AUM) inflows were $91 million for
first quarter 2022.
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 March
31, 2022 (first quarter 2022).
“The first quarter of 2022 was a turning point for Assured
Guaranty. By completing consensual settlements, we eliminated $1.3
billion of our Puerto Rico insured net par exposure and received
cash and new G.O. bonds totaling approximately $1.2 billion, as
well as additional contingent value instruments. The settlements
also resulted in an acceleration of premium earnings, reduced our
Puerto Rico exposure to less than 1% of our net par outstanding and
contributed to our strong first-quarter adjusted operating income
of $1.34 per share, almost two-and-a-half times last year’s
first-quarter result,” said President and CEO Dominic Frederico,
adding “In the quarter’s volatile capital markets, we produced $69
million of PVP and captured a 58% share of insured par sold in the
primary municipal bond market.”
(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
March 31,
2022
2021
GAAP
Net income (loss) attributable to
AGL
$
66
$
11
Net income (loss) attributable to AGL
per diluted share
$
0.98
$
0.14
Weighted average diluted shares
67.4
77.5
Non-GAAP
Adjusted operating income (loss) (1)
$
90
$
43
Adjusted operating income per diluted
share(1)
$
1.34
$
0.55
Weighted average diluted shares
67.4
77.5
Gain (loss) related to FG VIE and CIV
consolidation(2) included in adjusted operating income
$
(10
)
$
—
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income per share
$
(0.14
)
$
—
Components of total adjusted operating
income (loss)
Insurance segment
$
133
$
79
Asset Management segment
—
(7
)
Corporate division
(33
)
(29
)
Other
(10
)
—
Adjusted operating income (loss)
$
90
$
43
As of
March 31, 2022
December 31, 2021
Amount
Per Share
Amount
Per Share
Shareholders' equity attributable to
AGL
$
5,802
$
89.20
$
6,292
$
93.19
Adjusted operating shareholders’ equity
(1)
5,860
90.09
5,991
88.73
ABV (1)
8,665
133.21
8,823
130.67
Common Shares Outstanding
65.0
67.5
(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).
On a per share basis, shareholders’ equity attributable to AGL
was $89.20 as of March 31, 2022, which was lower than shareholders’
equity attributable to AGL of $93.19 as of December 31, 2021,
primarily due to unrealized losses on the investment portfolio due
to rising interest rates. On a per share basis, adjusted operating
shareholders’ equity and ABV reached record highs primarily due to
the accretive effect of the share repurchase program, and in the
case of ABV, favorable loss development and net written premiums.
See “Common Share Repurchases” on page 10.
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
March 31,
2022
2021
Segment revenues
Net earned premiums and credit derivative
revenues
$
219
$
107
Net investment income
63
73
Other income (loss)
(4
)
(1
)
Total segment revenues
278
179
Segment expenses
Loss expense
60
30
Interest expense
1
—
Amortization of deferred acquisition costs
(DAC)
4
3
Employee compensation and benefit
expenses
38
36
Write-off of Municipal Assurance Corp.
(MAC) insurance licenses
—
16
Other operating expenses
19
21
Total segment expenses
122
106
Equity in earnings (losses) of
investees
(1
)
19
Segment adjusted operating income
(loss) before income taxes
155
92
Less: Provision (benefit) for income
taxes
22
13
Segment adjusted operating income
(loss)
$
133
$
79
Insurance segment adjusted operating income increased 68% to
$133 million in first quarter 2022 compared with $79 million in the
three-month period ended March 31, 2021 (first quarter 2021),
primarily due to a benefit of $63 million (after-tax) associated
with the exposures covered by the Puerto Rico settlements. The
benefit is primarily due to the release of unearned premium reserve
(UPR) associated with extinguished financial guaranty policies,
which resulted in (1) acceleration of net earned premiums, and (2)
acceleration of loss expense that was previously embedded in the
UPR. For those Puerto Rico transactions that became part of the
Company’s insured portfolio when the Company purchased certain
legacy monolines, UPR was recorded at fair value, which was higher
than the contractual premiums due under the acquired policies. The
benefit also includes the effect of positive economic development
on the settled credits as the value of recoveries received
increased between December 31, 2021 and the dates we received such
recoveries.
The Puerto Rico Settlements resulted in a $1.3 billion reduction
in Puerto Rico net par that consisted of the following exposures:
(1) Puerto Rico General Obligation (GO), (2) Puerto Rico Public
Buildings Authority (PBA), (3) Puerto Rico Convention Center
District Authority (PRCCDA), and (4) Puerto Rico Infrastructure
Financing Authority (PRIFA) (collectively, settled Puerto Rico
credits). Under the Puerto Rico settlements, the Company paid $1.3
billion in claims and received (net of ceded reinsurance), cash,
new recovery bonds and other securities with a par value of $1.1
billion, as well as contingent value instruments (CVIs). In
addition, the Company placed $0.1 billion in cash and securities
into custodial trusts it established for the benefit of bondholders
that did not elect to be paid principal and accrued interest on the
effective date of the settlement pursuant to options available
under the plan. The Company has sold some of the new recovery bonds
and CVIs and may continue to sell amounts it still retains, subject
to market conditions. The fair value of the Puerto Rico new
recovery bonds, CVIs and other securities held in the investment
portfolio on March 31, 2022 was $688 million.
The components of Insurance segment net earned premiums and
credit derivative revenues, including the premium accelerations
associated with the extinguishment of most of the GO and PBA
exposures and all of the PRCCDA and PRIFA exposures, are shown in
the table below.
Insurance Segment
Net Earned Premiums and Credit
Derivative Revenues
(in millions)
Quarter Ended
March 31,
2022
2021
Scheduled net earned premiums and credit
derivative revenues
$
89
$
91
Accelerations - Puerto Rico
104
—
Accelerations - other
26
16
Total
$
219
$
107
The components of Insurance segment loss expense and the
rollforward of expected losses are presented in the tables below by
sector.
Insurance Segment
Loss Expense
(in millions)
Quarter Ended
March 31,
2022
2021
Public finance
$
55
$
18
U.S. residential mortgage-backed
securities (RMBS)
6
12
Other structured finance
(1
)
—
Total
$
60
$
30
Roll Forward of Net Expected
Loss to be Paid (Recovered)(1)
(in millions)
Net Expected Loss to be Paid
(Recovered) as of December 31, 2021
Economic Loss (Benefit)
Development
Net (Paid) Recovered
Losses
Net Expected Loss to be Paid
(Recovered) as of March 31, 2022
Public finance
$
209
$
(50
)
$
32
$
191
U.S. RMBS
150
7
38
195
Other structured finance
52
(1
)
(5
)
46
Total
$
411
$
(44
)
$
65
$
432
(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), and
without consideration of unearned premium reserves.
Loss expense is a function of economic loss development, as well
as the amortization of UPR. In first quarter 2022, the largest
component of loss expense was the public finance sector, which had
loss expense of $55 million and an economic benefit of $50 million,
both primarily attributable to Puerto Rico exposures. The
difference between public finance loss expense and public finance
economic benefit was primarily attributable to the release of UPR
associated with extinguished Puerto Rico policies that previously
had expected losses.
The net economic benefit of $44 million in first quarter 2022,
across all sectors, includes a benefit of $47 million due to
increases in discount rates.
Loss expense was $30 million in first quarter 2021, mainly
attributable to Puerto Rico and U.S. RMBS exposures. Economic
development in first quarter 2021 was a loss of $13 million. The
effect on economic development of increases in discount rates in
first quarter 2021 was a benefit of $48 million.
The components of income from the investment portfolio are
presented in the table below.
Insurance Segment
Income from Investment
Portfolio
(in millions)
Quarter Ended
March 31,
2022
2021
Net investment income
$
63
$
73
Unrealized gain (loss) on trading
securities (1)
(4
)
—
Equity in earnings (losses) of
investees:
AssuredIM Funds (2)
11
10
Other alternative investments
(12
)
9
Total
$
58
$
92
(1)
Reported in “other income (loss)” in the
condensed consolidated statements of operations.
(2)
Assured Investment Management LLC
(AssuredIM LLC) and its investment management affiliates (together
with AssuredIM LLC, AssuredIM),
The total income from the investment portfolio decreased due
primarily to (1) lower earnings from alternative investments, and
(2) lower net investment income on available-for-sale
fixed-maturity securities due to lower average balances, which
declined due to dividends paid by the insurance subsidiaries and
liquidity needs associated with the Puerto Rico claim payments in
first quarter 2022.
CVIs issued by Puerto Rico and received as part of the Puerto
Rico settlements are classified as trading securities with changes
in fair value reported in other income. Unrealized loss on trading
securities was $4 million in first quarter 2022.
Equity in earnings of AssuredIM Funds were $11 million in first
quarter 2022 and $10 million in first quarter 2021 mainly due to an
overall increase in the net asset value (NAV) of the AssuredIM
collateralized loan obligation (CLO) and asset-based funds. Other
alternative investments generated losses of $12 million in first
quarter 2022, compared with gains of $9 million in first quarter
2021. This component of income varies based on changes in the fair
value of the underlying assets of the AssuredIM funds and other
alternative investments.
The Insurance segment is authorized to invest up to $750 million
in AssuredIM Funds. As of March 31, 2022, the Insurance segment had
total commitments to AssuredIM Funds of $702 million, of which $229
million was undrawn. The Insurance segment’s interest in AssuredIM
Funds was valued at $559 million as of March 31, 2022.
In the Insurance segment, investments in AssuredIM Funds are
recorded at NAV, with the change in NAV reported in “equity in
earnings (losses) of investees.” The AssuredIM Funds include
healthcare, CLOs, municipal bond and asset-based funds. Equity in
earnings (losses) of investees also includes the Company's
proportionate interests in other alternative investments. To the
extent that the amounts invested in AssuredIM funds and other
alternative investments increase and available-for-sale
fixed-maturity securities decrease, net investment income may
decline.
New Business Production
PVP, a non-GAAP financial measure, measures the value of the
Insurance segment’s new business production and includes upfront
premiums and the present value of expected future installments on
new business at the time of issuance, for all contracts regardless
of form or GAAP accounting model. See “Explanation of Non-GAAP
Financial Measures” at the end of this press release.
Insurance Segment
New Business
Production
(in millions)
Quarter Ended March
31,
2022
2021
GWP
PVP (1)
Gross Par Written (1)
GWP
PVP (1)
Gross Par Written (1)
Public finance - U.S.
$
49
$
49
$
3,931
$
79
$
81
$
5,427
Public finance - non-U.S.
16
12
223
5
3
—
Structured finance - U.S.
5
2
60
3
2
45
Structured finance - non-U.S.
—
6
257
—
—
—
Total
$
70
$
69
$
4,471
$
87
$
86
$
5,472
(1)
PVP and Gross Par Written in the table
above are based on “close date,” when the transaction settles. In
first quarter 2022, the maximum potential exposure under a
financial guarantee (not accounted for as insurance) is included in
non-U.S. structured finance.
U.S. public finance GWP and PVP in first quarter 2022 was lower
than the comparable GWP and PVP in first quarter 2021, primarily
due to a large transaction closed in first quarter 2021 that did
not recur. The average rating of U.S. public finance par written
was A- in first quarter 2022, which is consistent with the average
rating in first quarter 2021. The Company's direct par written
represented 58% of the total U.S. municipal market insured issuance
in first quarter 2022, compared with 65% in first quarter 2021, and
the Company’s penetration of all municipal issuance was 4.9% in
first quarter 2022, compared with 5.3% in first quarter 2021.
In first quarter 2022, non-U.S. public finance GWP and PVP were
primarily attributable to a United Kingdom (U.K.) water liquidity
guarantee and a restructuring of an existing U.K water
transaction.
In first quarter 2022, structured finance GWP is primarily
attributable to U.S. credits. Non-U.S. structured finance PVP
primarily includes a guarantee of rental income cash flows, for
which no GWP is reported under GAAP.
Asset Management Segment
Asset Management Segment
Results
(in millions)
Quarter Ended
March 31,
2022
2021
Segment revenues
Management fees:
CLOs (1)
$
12
$
12
Opportunity funds and liquid
strategies
8
4
Wind-down funds
1
3
Total management fees
21
19
Performance fees
16
1
Other income
2
—
Total segment revenues
39
20
Segment expenses
Employee compensation and benefit
expenses
29
19
Other operating expenses (2)
10
10
Total segment expenses
39
29
Segment adjusted operating income
(loss) before income taxes
—
(9
)
Less: Provision (benefit) for income
taxes
—
(2
)
Segment adjusted operating income
(loss)
$
—
$
(7
)
(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 both first quarter 2022 and first quarter
2021.
Management fees in first quarter 2022 increased to $21 million,
from $19 million in first quarter 2021. Management fees from
opportunity funds increased by $4 million due to higher AUM in
first quarter 2022 compared with first quarter 2021. Fees from the
wind-down funds decreased as distributions to investors continued.
As of March 31, 2022, AUM of the wind-down funds was $0.5 billion,
compared with $1.3 billion as of March 31, 2021, and $0.6 billion
as of December 31, 2021.
The increase in performance fees and compensation expense in
first quarter 2022 were attributable to the healthcare and
asset-based funds.
Roll Forward of
Assets Under
Management
(in millions)
CLOs
Opportunity Funds
Liquid Strategies
Wind-Down Funds
Total
AUM, December 31, 2021
$
14,699
$
1,824
$
389
$
582
$
17,494
Inflows-third party
—
91
—
—
91
Inflows-intercompany
—
—
—
—
—
Outflows:
Redemptions
—
—
—
—
—
Distributions (1)
(335
)
(104
)
—
(135
)
(574
)
Total outflows
(335
)
(104
)
—
(135
)
(574
)
Net flows
(335
)
(13
)
—
(135
)
(483
)
Change in value
(82
)
63
(14
)
12
(21
)
AUM, March 31, 2022
$
14,282
$
1,874
$
375
$
459
$
16,990
(1)
Distributions from opportunity funds
include $48 million related to the AssuredIM Funds created prior to
the acquisition of BlueMountain Capital Management, LLC. As of
March 31, 2022, AUM related to these funds was $128 million.
Components of
Assets Under Management
(1)
(in millions)
As of
March 31, 2022
December 31,
2021
Funded AUM
$
16,249
$
16,821
Unfunded AUM
741
673
Fee-earning AUM
$
16,141
$
16,576
Non-fee earning AUM
849
918
Intercompany AUM
Funded AUM (2)
$
1,124
$
1,126
Unfunded AUM
229
244
(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
$564 million in investment-grade CLO and liquid municipal
strategies as of March 31, 2022 and of $574 million as of December
31, 2021.
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. Adjusted
operating loss for the corporate division was $33 million in first
quarter 2022 compared with $29 million in first quarter 2021.
Other (Effect of FG VIE and CIV consolidation)
The effect of consolidating FG VIEs and CIVs in first quarter
2022 was a loss of $10 million, compared with a de minimis amount
in first quarter 2021.
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
March 31,
2022
2021
Total
Per Diluted Share
Total
Per Diluted Share
Net income (loss) attributable to
AGL
$
66
$
0.98
$
11
$
0.14
Less pre-tax adjustments:
Realized gains (losses) on investments
3
0.05
(3
)
(0.04
)
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
(3
)
(0.04
)
(19
)
(0.25
)
Fair value gains (losses) on committed
capital securities (CCS)
1
0.02
(19
)
(0.24
)
Foreign exchange gains (losses) on
remeasurement of premiums receivable and loss and loss adjustment
expense (LAE) reserves (1)
(29
)
(0.44
)
1
0.01
Total pre-tax adjustments
(28
)
(0.41
)
(40
)
(0.52
)
Less tax effect on pre-tax adjustments
4
0.05
8
0.11
Adjusted operating income (loss)
$
90
$
1.34
$
43
$
0.55
Gain (loss) related to FG VIE and CIV
consolidation included in adjusted operating income
$
(10
)
$
(0.14
)
$
—
$
—
(1)
Foreign exchange gains (losses) in both
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 unrealized fair value losses on
credit derivatives in first quarter 2022 were mainly attributable
to increases in the credit spread of underlying reference
obligations, offset in part by the increased cost to buy protection
on Assured Guaranty Corp. (AGC), as the market cost of AGC’s
protection increased during the period. In first quarter 2021,
non-credit impairment-related unrealized fair value losses on
credit derivatives were generated primarily as a result of the
decreased cost to buy protection on AGC, as the market cost of
AGC's credit protection decreased during the period. Except for
underlying credit impairment, which is recognized as loss expense
in the Insurance segment, 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 gains on CCS in first quarter 2022 were primarily due
to a significant increase in London Interbank Offered Rate. Fair
value losses on CCS in first quarter 2021 were primarily due to a
tightening in market spreads during the quarter. 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.
Common Share Repurchases
Summary of Share
Repurchases
(in millions, except per share
amounts)
Amount
Number of Shares
Average Price Per
Share
2022 (January 1 - March 31)
$
155
2.74
$
56.62
2022 (April 1 - May 5, 2022)
61
1.01
59.86
Total 2022
$
216
3.75
57.49
From 2013 through May 5, 2022, the Company repurchased a total
of 135.8 million common shares at an average price of $32.21,
representing approximately 70.0% of the total shares outstanding at
the beginning of the repurchase program in 2013. As of May 5, 2022,
the Company was authorized to purchase $240 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. 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
March 31,
2022
2021
Revenues
Net earned premiums
$
214
$
103
Net investment income
62
70
Asset management fees
34
24
Net realized investment gains (losses)
3
(3
)
Fair value gains (losses) on credit
derivatives
(3
)
(19
)
Fair value gains (losses) on CCS
1
(19
)
Fair value gains (losses) on FG VIEs
6
5
Fair value gains (losses) on CIVs
14
16
Foreign exchange gain (loss) on
remeasurement
(30
)
—
Other income (loss)
(1
)
—
Total revenues
300
177
Expenses
Loss and LAE
57
30
Interest expense
20
21
Amortization of DAC
4
3
Employee compensation and benefit
expenses
73
60
Other operating expenses
42
57
Total expenses
196
171
Income (loss) before income taxes and
equity in earnings (losses) of investees
104
6
Equity in earnings (losses) of
investees
(11
)
9
Income (loss) before income
taxes
93
15
Less: Provision (benefit) for income
taxes
18
—
Net income (loss)
75
15
Less: Noncontrolling interests
9
4
Net income (loss) attributable to
AGL
$
66
$
11
Condensed Consolidated Balance
Sheets (unaudited)
(in millions)
As of
March 31, 2022
December 31, 2021
Assets
Investments:
Fixed-maturity securities
available-for-sale, at fair value
$
8,156
$
8,202
Fixed-maturity securities, trading, at
fair value
174
—
Short-term investments, at fair value
585
1,225
Other invested assets
152
181
Total investments
9,067
9,608
Cash
119
120
Premiums receivable, net of commissions
payable
1,335
1,372
DAC
135
131
Salvage and subrogation recoverable
529
801
FG VIEs’ assets, at fair value
307
260
Assets of CIVs
5,700
5,271
Goodwill and other intangible assets
172
175
Other assets
481
470
Total assets
$
17,845
$
18,208
Liabilities
Unearned premium reserve
$
3,596
$
3,716
Loss and LAE reserve
718
869
Long-term debt
1,673
1,673
Credit derivative liabilities, at fair
value
157
156
FG VIEs’ liabilities, at fair value
335
289
Liabilities of CIVs
4,854
4,436
Other liabilities
496
569
Total liabilities
11,829
11,708
Redeemable noncontrolling
interests
21
22
Shareholders’ equity
Common shares
1
1
Retained earnings
5,878
5,990
Accumulated other comprehensive income
(78
)
300
Deferred equity compensation
1
1
Total shareholders’ equity attributable
to AGL
5,802
6,292
Nonredeemable noncontrolling interests
193
186
Total shareholders’ equity
5,995
6,478
Total liabilities, redeemable
noncontrolling interests and shareholders’ equity
$
17,845
$
18,208
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 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; (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). 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 for 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 GAAP
Shareholders’ Equity attributable to AGL to
Adjusted Operating
Shareholders’ Equity and ABV
(in millions, except per share
amounts)
As of
March 31, 2022
December 31, 2021
Total
Per Share
Total
Per Share
Shareholders’ equity attributable to
AGL
$
5,802
$
89.20
$
6,292
93.19
Less pre-tax adjustments:
Non-credit impairment-related unrealized
fair value gains (losses) on credit derivatives
(57
)
(0.88
)
(54
)
(0.80
)
Fair value gains (losses) on CCS
24
0.38
23
0.34
Unrealized gain (loss) on investment
portfolio excluding foreign exchange effect
(26
)
(0.41
)
404
5.99
Less taxes
1
0.02
(72
)
(1.07
)
Adjusted operating shareholders’
equity
5,860
90.09
5,991
88.73
Pre-tax adjustments:
Less: DAC
135
2.07
131
1.95
Plus: Net present value of estimated net
future revenue
164
2.52
160
2.37
Plus: Net unearned premium reserve on
financial guaranty contracts in excess of expected loss to be
expensed
3,369
51.79
3,402
50.40
Plus taxes
(593
)
(9.12
)
(599
)
(8.88
)
ABV
$
8,665
$
133.21
$
8,823
$
130.67
Gain (loss) related to FG VIE and CIV
consolidation included in:
Adjusted operating shareholders’
equity
$
22
$
0.34
$
32
$
0.47
ABV
13
0.19
23
0.34
Shares outstanding at the end of the
period
65.0
67.5
Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because
it enables an evaluation of the 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
(1)
(in millions)
Quarter Ended
March 31, 2022
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
GWP
$
49
$
16
$
5
$
—
$
70
Less: Installment GWP and other GAAP
adjustments(1)
—
16
3
—
19
Upfront GWP
49
—
2
—
51
Plus: Installment premiums and
other(2)
—
12
—
6
18
PVP
$
49
$
12
$
2
$
6
$
69
Quarter Ended
March 31, 2021
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
GWP
$
79
$
5
$
3
$
—
$
87
Less: Installment GWP and other GAAP
adjustments(1)
34
3
1
—
38
Upfront GWP
45
2
2
—
49
Plus: Installment premiums and other
36
1
—
—
37
PVP
$
81
$
3
$
2
$
—
$
86
(1)
This 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)
This 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. This
also includes the present value of future premiums and fees
associated with a financial guarantee written by the Company that,
under GAAP, is accounted for under ASC 460, Guarantees.
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 uses 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, May 6, 2022.
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 1-844-200-6205 (in the U.S.) or
1-929-526-1599 (International); the access code is 554998.
A replay of the conference call will be available approximately
three hours after the call ends through August 6, 2022. The replay
will be available via archived webcast in the Investor Information
section of the Company's website at AssuredGuaranty.com or by
dialing 1-866-813-9403 (in the U.S.) or 1-929-458-6194
(International); the access code is 396514.
Please refer to Assured Guaranty's March 31, 2022 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 “March 31, 2022 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 1Q 2022,” which lists the U.S.
public finance new issues insured by the Company in first quarter
2022, and
- “Structured Finance Transactions at March 31, 2022,” 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;
consequences of the conflict in Ukraine, including economic
sanctions, volatility in energy prices, and the potential for
increased cyberattacks; changes in the world’s credit markets,
segments thereof, interest rates, inflation, 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 possibility that acquisitions made by
Assured Guaranty, including its acquisition of BlueMountain Capital
Management, LLC (now known as Assured Investment Management LLC)
and its associated entities, 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; 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 May 5,
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/20220504005708/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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