Assured Guaranty Ltd. Reports Results for Second Quarter 2018

August 1, 2018

HAMILTON, Bermuda--(BUSINESS WIRE)--Aug 1, 2018--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 June 30, 2018 (second quarter 2018).


(1) Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release.

1 Please see “Explanation of Non-GAAP Financial Measures.” When a financial measure is described as “operating,” it is a non-GAAP financial measure.

2 Expected losses acquired in the SGI Transaction were $83 million when using the 6% discount rate used for PVP. On a GAAP basis, expected losses are discounted at the risk-free rates, and were $131 million (see “economic loss development”).

“For the fourth consecutive year, we increased our future earnings power by completing a substantial strategic transaction within our industry,” said Dominic Frederico, President and CEO of Assured Guaranty. “The closing of our reinsurance transaction with Syncora Guarantee Inc. brought about record new business results in the second quarter of 2018. We continue to lead the municipal bond insurance industry and insured 57% of U.S. municipal bond par volume issued with insurance year-to-date. And once again, we reached new highs for per share shareholders’ equity, non-GAAP operating shareholders’ equity and non-GAAP adjusted book value.”

Second Quarter Results

GAAP Financial Information

Net income for second quarter 2018 was $75 million, compared with net income of $153 million for the three-month period ended June 30, 2017 (second quarter 2017). The decrease was primarily attributable to changes in foreign exchange rates, lower net earned premiums, and a commutation loss of $18 million related to the SGI Transaction. Additionally, the second quarter 2017 effective tax rate was lower than second quarter 2018 due primarily to the release of $37 million in tax reserves for uncertain tax positions in second quarter 2017. Unrealized gains on credit derivatives and lower loss and loss adjustment expenses (LAE) partially offset the decline in net income in second quarter 2018.

Foreign exchange gains and losses relate primarily to remeasurement of premiums receivable and are due mainly to changes in the exchange rate of the British pound sterling relative to the United States (U.S.) dollar. Second quarter 2018 foreign exchange losses were $34 million, compared with gains of $21 million in second quarter 2017.

Net earned premiums in second quarter 2018 were $136 million, compared with $162 million in second quarter 2017. The decline in net earned premiums was attributable mainly to reduced refunding activity due to a reduction in the insured portfolio as well as fewer advanced refunding bonds, caused by changes in tax law.

Loss and LAE was a loss of $44 million in second quarter 2018 compared with $72 million in second quarter 2017. The losses in each period were primarily attributable to Puerto Rico exposures.

Fair value gains on credit derivatives were $48 million in second quarter 2018, compared with losses of $6 million in second quarter 2017. Second quarter 2018 fair value gains were attributable primarily to price improvements on the underlying collateral of the Company’s insured credit default swaps, while second quarter 2017 losses were attributable primarily to narrowing of the Company’s credit 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.

Economic Loss Development

Economic loss development in second quarter 2018 was a loss of $19 million, which primarily comprised increases in expected losses on certain Puerto Rico exposures. This was partially offset by a benefit of $28 million in U.S. residential mortgage-backed securities (RMBS) that was mainly related to improved collateral performance. The SGI Transaction added $131 million of net expected loss on June 1, 2018, comprising primarily U.S. RMBS transactions.


(1) Economic loss development represents the change in net expected loss to be paid 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. Economic loss development is the principal measure that the Company uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid 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).

New Business Production

Financial guaranty GWP includes amounts collected upfront on new business written, the present value of future premiums on new business written (discounted at risk free rates), as well as the effects of changes in the estimated lives of transactions in the inforce book of business. Non-financial guaranty GWP is recorded as premiums are received. Non-GAAP PVP includes upfront premiums and future installments on new business as estimated at the time of issuance, discounted at 6% for all contracts.


(1) Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release.

GWP and PVP for second quarter 2018 reached 10-year records due to the assumption of substantially all of the insured portfolio of Syncora Guarantee Inc. (SGI). On a GAAP basis, the SGI Transaction generated GWP of $330 million, plus $86 million in expected future credit derivative revenue, and included transactions with $131 million in expected losses (discounted at a risk-free rate on a GAAP basis). On a non-GAAP basis, PVP was $391 million, and included transactions with expected losses of $83 million (discounted at 6% consistent with the PVP discount rate). The components of new business production generated by the SGI Transaction are presented below.


(1) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. See “Explanation of Non-GAAP Financial Measures, PVP or Present Value of New Business Production.”

Excluding the assumed business from SGI, U.S. public finance PVP was 7% higher compared to second quarter 2017, despite a 7% decline in new U.S. municipal bonds issued. In second quarter 2018, Assured Guaranty once again guaranteed the majority of insured par issued.

Outside the U.S. the Company closed United Kingdom regulated utility transactions in the secondary market. This is the eleventh consecutive quarter that the Company generated new business outside the U.S. Quarterly business activity in the international infrastructure sector is influenced by typically long lead times and therefore may vary from quarter to quarter.

In addition, the Company closed insurance and reinsurance aircraft residual value insurance policies, comprising substantially all of the non-U.S. structured finance new business in second quarter 2018 and second quarter 2017. Structured finance transactions tend to have long lead times and may vary from period to period.

Other Non-GAAP Financial Measures

Non-GAAP operating income was $74 million in second quarter 2018, compared with $141 million in second quarter 2017. Non-GAAP operating income in second quarter 2018 was lower primarily due to lower net earned premiums and commutation losses in second quarter 2018, and a higher effective tax rate in second quarter 2018, offset in part by lower loss expense.

Common Share Repurchases

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