- Net income was $59 million, or $0.43 per share, for first quarter 2016, compared with $201 million, or $1.28 per share, for first quarter 2015.
- Operating income1 was $113 million, or $0.82 per share, for first quarter 2016, compared with $140 million, or $0.89 per share, for first quarter 2015.
- Shareholders' equity per share, operating shareholders' equity1 per share and adjusted book value1 per share reached new records of $45.26, $44.08 and $61.40, respectively.
- First quarter 2016 share repurchases totaled $75 million, or 3.0 million shares.
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, 2016
(first quarter 2016).
|
Summary Financial Results
|
|
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
59
|
|
|
$
|
201
|
|
Operating income1
|
|
|
|
|
|
113
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted share
|
|
|
|
|
|
0.43
|
|
|
1.28
|
|
Operating income1 per diluted share
|
|
|
|
|
|
0.82
|
|
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares2
|
|
|
|
|
|
137.0
|
|
|
156.8
|
|
|
|
|
|
|
|
|
|
|
|
PVP1
|
|
|
|
|
|
$
|
38
|
|
|
$
|
36
|
|
Gross par written
|
|
|
|
|
|
2,749
|
|
|
2,708
|
|
|
1 Please see “Explanation of Non-GAAP Financial Measures” at
the end of this press release.
2 Diluted shares for generally accepted accounting principles
(GAAP) net income and non-GAAP operating income were the same.
|
Summary Financial Results (continued)
|
|
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Amount
|
|
Per Share
|
|
Amount
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
$
|
6,113
|
|
|
$
|
45.26
|
|
|
$
|
6,063
|
|
|
$
|
43.96
|
|
Operating shareholders' equity1
|
|
|
|
|
|
5,954
|
|
|
44.08
|
|
|
5,946
|
|
|
43.11
|
|
Adjusted book value1
|
|
|
|
|
|
8,294
|
|
|
61.40
|
|
|
8,439
|
|
|
61.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
|
|
|
135.1
|
|
|
|
|
137.9
|
|
|
|
|
|
________________________________________________
(1) Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release.
“Our first quarter provided a strong start to 2016,” said Dominic
Frederico, President and CEO. “U.S. municipal and international
infrastructure activity resulted in our best first quarter production in
four years. Our secondary market business was very strong and our
overall pricing improved, and we did this in an environment where
interest rate and credit spread conditions became even more challenging.
“We continued to pursue our alternative strategies and, in April,
announced a strategic agreement to acquire CIFG, which, once closed,
will add a solid book of financial guaranty business and increase our
capital base and policyholders’ surplus. Also, once again, we set new
per-share records for operating shareholders’ equity and adjusted book
value.”
First Quarter Results
GAAP Financial Information
Net income for first quarter 2016 was $59 million, compared with net
income of $201 million for the three-month period ended March 31, 2015
(first quarter 2015). The decrease was primarily attributable to fair
value losses on credit derivatives in first quarter 2016 compared with
gains in first quarter 2015, and higher loss and loss adjustment
expenses (LAE), offset in part by higher net earned premiums and a
benefit due to loss mitigation recoveries.
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 the portfolio. Fair value
losses on credit derivatives were $60 million in first quarter 2016,
primarily due to the decreased cost to purchase protection on Assured
Guaranty Corp. and Assured Guaranty Municipal Corp., and a decrease in
the value of a hedge on another financial guarantor. Fair value gains on
credit derivatives in first quarter 2015 were $124 million, primarily
driven by a residential mortgage-backed securities (RMBS) transaction
that changed from an expected loss to an expected recovery position and
gains in trust preferred securities and other sectors.
Loss and LAE incurred was $90 million in first quarter 2016, primarily
due to increased loss reserves on certain Puerto Rico exposures. Loss
and LAE incurred in first quarter 2015 was $18 million, which was also
primarily due to increased loss reserves on certain Puerto Rico
exposures.
Net earned premiums were $183 million in first quarter 2016, compared
with $142 million in first quarter 2015. The increase is mainly due to
higher accelerations and to net earned premiums related to the
acquisition of Radian Asset Assurance Inc. (Radian Asset).
|
Consolidated Statements of Operations (unaudited)
|
|
(in millions)
|
|
|
|
|
Quarter Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2016
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
Net earned premiums
|
|
|
$
|
183
|
|
|
$
|
142
|
|
|
Net investment income
|
|
|
99
|
|
|
101
|
|
|
Net realized investment gains (losses)
|
|
|
(13
|
)
|
|
16
|
|
|
Net change in fair value of credit derivatives:
|
|
|
|
|
|
|
Realized gains (losses) and other settlements
|
|
|
8
|
|
|
21
|
|
|
Net unrealized gains (losses)
|
|
|
(68
|
)
|
|
103
|
|
|
Net change in fair value of credit derivatives
|
|
|
(60
|
)
|
|
124
|
|
|
Fair value gains (losses) on committed capital securities (CCS)
|
|
|
(16
|
)
|
|
2
|
|
|
Fair value gains (losses) on financial guaranty variable interest
entities (FG VIEs)
|
|
|
18
|
|
|
(7
|
)
|
|
Other income (loss)
|
|
|
34
|
|
|
(9
|
)
|
|
Total revenues
|
|
|
245
|
|
|
369
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Loss and LAE
|
|
|
90
|
|
|
18
|
|
|
Amortization of deferred acquisition costs
|
|
|
4
|
|
|
4
|
|
|
Interest expense
|
|
|
26
|
|
|
25
|
|
|
Other operating expenses
|
|
|
60
|
|
|
56
|
|
|
Total expenses
|
|
|
180
|
|
|
103
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
65
|
|
|
266
|
|
|
Provision (benefit) for income taxes
|
|
|
6
|
|
|
65
|
|
|
Net income (loss)
|
|
|
$
|
59
|
|
|
$
|
201
|
|
|
|
Economic Loss Development
Economic loss development in first quarter 2016 was $59 million,
comprising $99 million in loss development in the public finance sector
and a benefit of $40 million in the structured finance sector. These
amounts include an aggregate $63 million in loss development
attributable to the decline in discount rates for all sectors.
The economic loss development of $99 million in the public finance
sector includes a $39 million impact from the decline in discount rates.
The remainder of the loss development was mainly driven by increases in
loss reserves on various Puerto Rico exposures. The benefit for U.S.
RMBS of $31 million was primarily attributable to the acceleration of
claim payments as a means of mitigating future losses on certain Alt-A
transactions. The benefit of $9 million in the other structured finance
sector was primarily attributable to the commutation of certain assumed
student loan exposures.
|
Roll Forward of Net Expected Loss to be Paid (1)
|
|
(in millions)
|
|
|
|
|
|
Net Expected
Loss to be Paid
(Recovered) as
of December 31,
2015
|
|
Economic Loss
Development/
(Benefit)
|
|
Losses
(Paid)/
Recovered
|
|
Net Expected
Loss to be Paid
(Recovered) as of
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public finance
|
|
|
|
$
|
809
|
|
|
$
|
99
|
|
|
$
|
(5
|
)
|
|
$
|
903
|
|
|
U.S. RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
Before representations and warranties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(R&W) benefit
|
|
|
|
488
|
|
|
(50
|
)
|
|
(98
|
)
|
|
340
|
|
|
R&W benefit
|
|
|
|
(79
|
)
|
|
19
|
|
|
13
|
|
|
(47
|
)
|
|
U.S. RMBS
|
|
|
|
409
|
|
|
(31
|
)
|
|
(85
|
)
|
|
293
|
|
|
Other structured finance
|
|
|
|
173
|
|
|
(9
|
)
|
|
(23
|
)
|
|
141
|
|
|
Total
|
|
|
|
$
|
1,391
|
|
|
$
|
59
|
|
|
$
|
(113
|
)
|
|
$
|
1,337
|
|
|
|
________________________________________________
(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 GAAP.
New Business Production
|
New Business Production
|
|
(in millions)
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
PVP(1)
|
|
Gross Par
Written
|
|
PVP(1)
|
|
Gross Par
Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public finance - U.S.
|
|
|
|
$
|
31
|
|
|
$
|
2,749
|
|
|
$
|
13
|
|
|
$
|
2,441
|
|
Public finance - non - U.S.
|
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Structured finance - U.S.
|
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
261
|
|
Structured finance - non-U.S.
|
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
6
|
|
Total
|
|
|
|
$
|
38
|
|
|
$
|
2,749
|
|
|
$
|
36
|
|
|
$
|
2,708
|
|
|
________________________________________________
(1) Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release.
U.S. public finance PVP increased to $31 million in first quarter 2016
from $13 million in first quarter 2015, representing an increase of
138%. The average premium rate increased compared with first quarter
2015 while the average rating of par written remained in the A-
category. During first quarter 2016, Assured Guaranty once again
guaranteed the majority of insured par issued.
Non-U.S. public finance PVP in first quarter 2016 represents additional
future premiums related to the restructuring of an existing insured
obligation.
Other Non-GAAP Financial Measures
Operating income was $113 million in first quarter 2016, compared with
operating income of $140 million in first quarter 2015. The decrease in
operating income was primarily due to higher loss reserves on certain
Puerto Rico exposures, partially offset by higher net earned premiums
and loss mitigation recoveries.
Total net earned premiums and credit derivative revenues in first
quarter 2016 were $198 million, compared with $171 million in first
quarter 2015. Acceleration of net earned premiums and credit derivative
revenues was $89 million in first quarter 2016, compared with $41
million in first quarter 2015, and included the acceleration of premiums
related to the termination of previously insured obligations of Skyway
Concession Company LLC. First quarter 2016 net earned premiums and
credit derivative revenues also increased due to the Radian Asset
acquisition. On an operating income basis, credit derivative contracts
and FG VIEs are accounted for as financial guaranty insurance.
Operating shareholders' equity per share and adjusted book value per
share increased in first quarter 2016 in part due to the Company's
repurchase of its common shares, as discussed in greater detail below.
Common Share Repurchases
In February 2016, the Company exhausted its previous $400 million common
share repurchase authorization, and on February 24, 2016, the Board of
Directors approved an incremental $250 million share repurchase
authorization. As of May 4, 2016, the Company's remaining share
repurchase authorization was $210 million.
|
Summary of Share Repurchases
|
|
(in millions, except per share amounts)
|
|
|
|
Amount
|
|
|
Number of
Shares
|
|
|
Average Price
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
$
|
264
|
|
|
|
12.5
|
|
|
|
$
|
21.12
|
|
2014
|
|
590
|
|
|
|
24.4
|
|
|
|
24.17
|
|
2015
|
|
555
|
|
|
|
21.0
|
|
|
|
26.43
|
|
2016 (January 1 - March 31)
|
|
75
|
|
|
|
3.0
|
|
|
|
24.69
|
|
2016 (April 1 - through May 4, 2016)
|
|
20
|
|
|
|
0.8
|
|
|
|
25.20
|
|
Total 2016
|
|
95
|
|
|
|
3.8
|
|
|
|
24.80
|
|
Cumulative repurchases since the beginning of 2013
|
|
$
|
1,504
|
|
|
|
61.7
|
|
|
|
$
|
24.36
|
|
|
As in the past, the Company's execution of its capital management
strategy is contingent upon its available free cash and the capital
position of the parent company, market conditions, the maintenance of
its strong financial strength ratings 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.
|
Consolidated Balance Sheets (unaudited)
|
|
(in millions)
|
|
|
|
|
As of
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Assets
|
|
|
|
|
|
|
Investment portfolio:
|
|
|
|
|
|
|
Fixed maturity securities, available-for-sale, at fair value
|
|
|
$
|
10,588
|
|
|
$
|
10,627
|
|
Short-term investments, at fair value
|
|
|
459
|
|
|
396
|
|
Other invested assets
|
|
|
167
|
|
|
169
|
|
Total investment portfolio
|
|
|
11,214
|
|
|
11,192
|
|
Cash
|
|
|
112
|
|
|
166
|
|
Premiums receivable, net of commissions payable
|
|
|
662
|
|
|
693
|
|
Ceded unearned premium reserve
|
|
|
236
|
|
|
232
|
|
Deferred acquisition costs
|
|
|
113
|
|
|
114
|
|
Reinsurance recoverable on unpaid losses
|
|
|
72
|
|
|
69
|
|
Salvage and subrogation recoverable
|
|
|
206
|
|
|
126
|
|
Credit derivative assets
|
|
|
55
|
|
|
81
|
|
Deferred tax asset, net
|
|
|
278
|
|
|
276
|
|
Current income tax receivable
|
|
|
11
|
|
|
40
|
|
FG VIE assets, at fair value
|
|
|
1,191
|
|
|
1,261
|
|
Other assets
|
|
|
302
|
|
|
294
|
|
Total assets
|
|
|
$
|
14,452
|
|
|
$
|
14,544
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Unearned premium reserve
|
|
|
$
|
3,810
|
|
|
$
|
3,996
|
|
Loss and LAE reserve
|
|
|
1,112
|
|
|
1,067
|
|
Reinsurance balances payable, net
|
|
|
58
|
|
|
51
|
|
Long-term debt
|
|
|
1,302
|
|
|
1,300
|
|
Credit derivative liabilities
|
|
|
489
|
|
|
446
|
|
FG VIE liabilities with recourse, at fair value
|
|
|
1,165
|
|
|
1,225
|
|
FG VIE liabilities without recourse, at fair value
|
|
|
119
|
|
|
124
|
|
Other liabilities
|
|
|
284
|
|
|
272
|
|
Total liabilities
|
|
|
8,339
|
|
|
8,481
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
1
|
|
Additional paid-in capital
|
|
|
1,269
|
|
|
1,342
|
|
Retained earnings
|
|
|
4,519
|
|
|
4,478
|
|
Accumulated other comprehensive income
|
|
|
319
|
|
|
237
|
|
Deferred equity compensation
|
|
|
5
|
|
|
5
|
|
Total shareholders' equity
|
|
|
6,113
|
|
|
6,063
|
|
Total liabilities and shareholders' equity
|
|
|
$
|
14,452
|
|
|
$
|
14,544
|
|
|
Explanation of Non-GAAP Financial Measures
The Company references financial measures that are not in accordance
with GAAP. Management and the Board of Directors utilize non-GAAP
financial measures in evaluating the Company's financial performance. By
providing these non-GAAP financial measures, the Company gives
investors, analysts and financial news reporters access to the same
information that management reviews internally. In addition, Assured
Guaranty's presentation of non-GAAP financial measures is consistent
with how analysts calculate their estimates of Assured Guaranty's
financial results in their research reports on Assured Guaranty and with
how investors, analysts and the financial news media evaluate Assured
Guaranty's financial results.
The following paragraphs and tables define each non-GAAP financial
measure, describe why it is useful and provides reconciliations to the
most comparable GAAP financial measure. Non-GAAP financial measures
should not be viewed as substitutes for their most directly comparable
GAAP measures.
Operating Income
Management believes that operating income is a useful measure because it
clarifies the understanding of the underwriting results of the Company's
financial guaranty business, and also includes financing costs and net
investment income, and enables investors and analysts to evaluate the
Company's financial results as compared with the consensus analyst
estimates distributed publicly by financial databases. Operating income
is defined as net income (loss) attributable to AGL, as reported under
GAAP, adjusted for the following:
1) Elimination of the after-tax 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. Trends in the underlying profitability of the Company's
business can be more clearly identified without the fluctuating effects
of these transactions.
2) Elimination of the after-tax non-credit-impairment unrealized fair
value gains (losses) on credit derivatives, which is the amount 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. Additionally, such
adjustments present all financial guaranty contracts on a more
consistent basis of accounting, whether or not they are subject to
derivative accounting rules.
3) Elimination of the after-tax fair value gains (losses) on the
Company's CCS. Such amounts 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.
4) Elimination of the after-tax foreign exchange gains (losses) on
remeasurement of net premium receivables and loss and LAE reserves.
Long-dated receivables constitute a significant portion of the net
premium receivable balance and represent the present value of future
contractual or expected collections. 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 effects of consolidating FG VIEs in order to
present all financial guaranty contracts on a more consistent basis of
accounting, whether or not GAAP requires consolidation. GAAP requires
the Company to consolidate certain VIEs that have issued debt
obligations insured by the Company even though the Company does not own
such VIEs.
|
Summary Reconciliation of
|
|
GAAP Net Income to Non-GAAP Operating Income (1)
|
|
(in millions)
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
$
|
59
|
|
|
$
|
201
|
|
|
Less after-tax adjustments:
|
|
|
|
|
|
|
|
Realized gains (losses) on investments
|
|
|
|
(9
|
)
|
|
9
|
|
|
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives
|
|
|
|
(43
|
)
|
|
66
|
|
|
Fair value gains (losses) on CCS
|
|
|
|
(10
|
)
|
|
1
|
|
|
Foreign exchange gains (losses) on remeasurement of premiums
receivable
|
|
|
|
|
|
|
|
|
|
and loss and LAE reserves
|
|
|
|
(2
|
)
|
|
(9
|
)
|
|
Effect of consolidating FG VIEs
|
|
|
|
10
|
|
|
(6
|
)
|
|
Operating income
|
|
|
|
$
|
113
|
|
|
$
|
140
|
|
|
|
________________________________________________
(1) The non-GAAP measures presented in the table above should not be
considered a substitute for financial results and measures determined or
calculated in accordance with GAAP.
|
Detailed Reconciliation of GAAP Net Income
|
|
to Non-GAAP Operating Income (1)
|
|
(in millions, except per share amounts)
|
|
|
|
|
Quarter Ended March 31, 2016
|
|
Quarter Ended March 31, 2015
|
|
|
|
|
GAAP
Income
Statement
Line Items
As Reported
|
|
Less:
Operating
Income
Adjustments
|
|
Non-GAAP
Operating
Income
Components
|
|
GAAP
Income
Statement
Line Items
As Reported
|
|
Less:
Operating
Income
Adjustments
|
|
Non-GAAP
Operating
Income
Components
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
|
$
|
183
|
|
|
$
|
(5
|
)
|
|
$
|
188
|
|
|
$
|
142
|
|
|
$
|
(5
|
)
|
|
$
|
147
|
|
|
Net investment income
|
|
|
99
|
|
|
(4
|
)
|
|
103
|
|
|
101
|
|
|
(1
|
)
|
|
102
|
|
|
Net realized investment gains (losses)
|
|
|
(13
|
)
|
|
(13
|
)
|
|
—
|
|
|
16
|
|
|
16
|
|
|
0
|
|
|
Net change in fair value of credit derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) and other settlements
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
21
|
|
|
21
|
|
|
—
|
|
|
Net unrealized gains (losses)
|
|
|
(68
|
)
|
|
(53
|
)
|
|
(15
|
)
|
|
103
|
|
|
103
|
|
|
—
|
|
|
Credit derivative revenues
|
|
|
—
|
|
|
(10
|
)
|
|
10
|
|
|
—
|
|
|
(24
|
)
|
|
24
|
|
|
Net change in fair value of credit derivatives
|
|
|
(60
|
)
|
|
(55
|
)
|
|
(5
|
)
|
|
124
|
|
|
100
|
|
|
24
|
|
|
Fair value gains (losses) on CCS
|
|
|
(16
|
)
|
|
(16
|
)
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
Fair value gains (losses) on FG VIEs
|
|
|
18
|
|
|
18
|
|
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
—
|
|
|
Other income (loss)
|
|
|
34
|
|
|
(2
|
)
|
|
36
|
|
|
(9
|
)
|
|
(13
|
)
|
|
4
|
|
|
Total revenues
|
|
|
245
|
|
|
(77
|
)
|
|
322
|
|
|
369
|
|
|
92
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial guaranty insurance
|
|
|
90
|
|
|
(7
|
)
|
|
97
|
|
|
18
|
|
|
(6
|
)
|
|
24
|
|
|
Credit derivatives
|
|
|
—
|
|
|
6
|
|
|
(6
|
)
|
|
—
|
|
|
12
|
|
|
(12
|
)
|
|
Amortization of deferred acquisition costs
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Interest expense
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
Other operating expenses
|
|
|
60
|
|
|
1
|
|
|
59
|
|
|
56
|
|
|
—
|
|
|
56
|
|
|
Total expenses
|
|
|
180
|
|
|
0
|
|
|
180
|
|
|
103
|
|
|
6
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
65
|
|
|
(77
|
)
|
|
142
|
|
|
266
|
|
|
86
|
|
|
180
|
|
|
Provision (benefit) for income taxes
|
|
|
6
|
|
|
(23
|
)
|
|
29
|
|
|
65
|
|
|
25
|
|
|
40
|
|
|
Income (loss)
|
|
|
$
|
59
|
|
|
$
|
(54
|
)
|
|
$
|
113
|
|
|
$
|
201
|
|
|
$
|
61
|
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
137.0
|
|
|
|
|
137.0
|
|
|
156.8
|
|
|
|
|
156.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
|
$
|
0.43
|
|
|
|
|
$
|
0.82
|
|
|
$
|
1.28
|
|
|
|
|
$
|
0.89
|
|
|
|
_______________________________________________
(1) The non-GAAP measures presented in the table above should not be
considered a substitute for financial results and measures determined or
calculated in accordance with GAAP.
Adjusted Book Value and Operating Shareholders’ Equity
Management also uses adjusted book value to measure the intrinsic value
of the Company, excluding franchise value. Growth in adjusted book value
per share is one of the key financial measures used in determining the
amount of certain long-term compensation to management and employees and
used by rating agencies and investors.
Management believes that operating shareholders' equity is a useful
measure because it presents the equity of Assured Guaranty Ltd. with all
financial guaranty contracts accounted for on a more consistent basis
and excludes fair value adjustments that are not expected to result in
economic gain or loss. Many investors, analysts and financial news
reporters use operating shareholders' equity as the principal financial
measure for valuing Assured Guaranty Ltd.'s current share price or
projected share price and also as the basis of their decision to
recommend, buy or sell Assured Guaranty Ltd.'s common shares. Many of
the Company's fixed income investors also use operating shareholders'
equity to evaluate the Company's capital adequacy. Operating
shareholders' equity is the basis of the calculation of adjusted book
value (see below). Operating shareholders' equity is defined as
shareholders' equity attributable to AGL, as reported under GAAP,
adjusted for the following:
1) Elimination of the effects of consolidating FG VIEs in order to
present all financial guaranty contracts on a more consistent basis of
accounting, whether or not GAAP requires consolidation. GAAP requires
the Company to consolidate certain VIEs that have issued debt
obligations insured by the Company even though the Company does not own
such VIEs.
2) Elimination of the after-tax non-credit-impairment unrealized fair
value gains (losses) on credit derivatives, which is the amount 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.
3) Elimination of the after-tax fair value gains (losses) on the
Company's CCS. Such amounts 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.
4) Elimination of the after-tax 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.
Management believes that adjusted book value is a useful measure because
it enables an evaluation of the net present value of the Company's
in-force premiums and revenues in addition to operating shareholders'
equity. The 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. Many investors,
analysts and financial news reporters use adjusted book value to
evaluate Assured Guaranty Ltd.'s share price and as the basis of their
decision to recommend, buy or sell the Assured Guaranty Ltd. common
shares. Adjusted book value is operating shareholders' equity, as
defined above, further adjusted for the following:
1) Elimination of after-tax 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 after-tax net present value of estimated net future
credit derivative revenue. See below.
3) Addition of the after-tax value of the unearned premium reserve on
financial guaranty contracts in excess of expected loss to be expensed,
net of reinsurance. This amount represents the expected future net
earned premiums, net of expected losses to be expensed, which are not
reflected in GAAP equity.
Net Present Value of Estimated Net Future Credit Derivative Revenue
Management believes that this amount is a useful measure because it
enables an evaluation of the value of future estimated credit derivative
revenue. There is no corresponding GAAP financial measure. This
amount represents the present value of estimated future revenue from the
Company's credit derivative in-force book of business, net of
reinsurance, ceding commissions and premium taxes for contracts without
expected economic losses, and is discounted at 6%. Estimated net future
credit derivative revenue may change from period to period 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.
|
Reconciliation of GAAP Shareholders' Equity to
|
|
Operating Shareholders' Equity (1) and Adjusted Book Value (1)
|
|
(in millions, except per share amounts)
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
$
|
6,113
|
|
|
$
|
6,063
|
|
|
Less after-tax adjustments:
|
|
|
|
|
|
|
|
|
Effect of consolidating FG VIEs
|
|
|
|
|
(12
|
)
|
|
(23
|
)
|
|
Non-credit impairment unrealized fair value gains (losses) on credit
|
|
|
|
|
|
|
|
|
|
|
derivatives
|
|
|
|
|
(203
|
)
|
|
(160
|
)
|
|
Fair value gains (losses) on CCS
|
|
|
|
|
30
|
|
|
40
|
|
|
Unrealized gain (loss) on investment portfolio excluding foreign
|
|
|
|
|
|
|
|
|
|
|
exchange effect
|
|
|
|
|
344
|
|
|
260
|
|
|
Operating shareholders' equity
|
|
|
|
|
5,954
|
|
|
5,946
|
|
|
After-tax adjustments:
|
|
|
|
|
|
|
|
|
Less: Deferred acquisition costs
|
|
|
|
|
145
|
|
|
147
|
|
|
Plus: Net present value of estimated net future credit derivative
revenue
|
|
|
|
|
91
|
|
|
116
|
|
|
Plus: Net unearned premium reserve on financial guaranty contracts in
|
|
|
|
|
|
|
|
|
|
|
excess of expected loss to be expensed
|
|
|
|
|
2,394
|
|
|
2,524
|
|
|
Adjusted book value
|
|
|
|
|
$
|
8,294
|
|
|
$
|
8,439
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at the end of the period
|
|
|
|
|
135.1
|
|
|
137.9
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
$
|
45.26
|
|
|
$
|
43.96
|
|
|
Operating shareholders' equity
|
|
|
|
|
44.08
|
|
|
43.11
|
|
|
Adjusted book value
|
|
|
|
|
61.40
|
|
|
61.18
|
|
|
|
________________________________________________
(1) The non-GAAP financial measures presented in the table above should
not be considered a substitute for financial results and measures
determined or calculated in accordance with GAAP.
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
premium supplements and additional installment premium on existing
contracts as to which the issuer has the right to call the insured
obligation but has not exercised such right, whether in insurance or
credit derivative contract form, which GAAP gross premiums written and
the net credit derivative premiums received and receivable portion of
net realized gains and other settlements on credit derivatives (Credit
Derivative Revenues) do not adequately measure. PVP in respect of
financial guaranty 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, in each case, discounted at
6%. For purposes of the PVP calculation, management discounts estimated
future installment premiums on insurance contracts at 6%, while under
GAAP, these amounts 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 future net earned or written premiums and Credit Derivative
Revenues may differ from PVP 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 PVP
|
|
to Gross Written Premiums (1)
|
|
(in millions)
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Total PVP
|
|
|
|
|
$
|
38
|
|
|
$
|
36
|
|
Less: PVP of non-financial guaranty insurance
|
|
|
|
|
0
|
|
|
6
|
|
PVP of financial guaranty insurance
|
|
|
|
|
38
|
|
|
30
|
|
Less: Financial guaranty installment premium PVP
|
|
|
|
|
7
|
|
|
17
|
|
Total: Financial guaranty upfront gross written premiums
|
|
|
|
|
31
|
|
|
13
|
|
Plus: Installment gross written premiums and other GAAP
adjustments(2)
|
|
|
|
|
(12
|
)
|
|
19
|
|
Total gross written premiums
|
|
|
|
|
$
|
19
|
|
|
$
|
32
|
|
|
________________________________________________
(1) The non-GAAP financial measures presented in the table above should
not be considered a substitute for financial results and measures
determined or calculated in accordance with GAAP.
(2) Includes present value of new business on installment policies,
gross written premium adjustments on existing installment policies due
to changes in assumptions, any cancellations of assumed reinsurance
contracts, and other GAAP adjustments.
Conference Call and Webcast Information
The Company will host a conference call for investors at 7:30 a.m.
Eastern Time (8:30 a.m. Atlantic Time) on Thursday, May 5, 2016. 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
August 4, 2016. To listen to the replay, dial 1-877-344-7529 (in the
U.S.) or 1-412-317-0088 (International), passcode 10084916. The replay
will be available one hour after the conference call ends.
Please refer to Assured Guaranty's March 31, 2016 Financial Supplement,
which is posted on the Company's website at assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd,
for more information on the Company's financial guaranty portfolios,
investment portfolio and other items. The Company is also posting on the
same page of its website:
-
“Public Finance Transactions in 1Q 2016,” which lists the U.S. public
finance new issues insured by the Company in first quarter 2016, and
-
“Structured Finance Transactions at March 31, 2016,” which lists the
Company's structured finance exposure as of that date.
In addition, the Company is posting at assuredguaranty.com/presentations
the “March 31, 2016 Equity Investor Presentation.” Furthermore, the
Company's separate-company subsidiary financial supplements and its
Fixed Income Presentation for the current quarter will be posted on the
Company's website when available. 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. Its operating subsidiaries provide credit enhancement
products to the U.S. and international public finance, infrastructure
and structured finance markets. 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 adjusted book value, 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 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 subsidiaries, and/or of any securities AGL or any of its
subsidiaries have issued, and/or of transactions that AGL’s subsidiaries
have insured; reduction in the amount of available insurance
opportunities and/or in the demand for Assured Guaranty's insurance;
developments in the world’s financial and capital markets that adversely
affect obligors’ payment rates, Assured Guaranty’s loss experience, or
its exposure to refinancing risk in transactions (which could result in
substantial liquidity claims on its guarantees); 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; the failure of Assured Guaranty
to realize loss recoveries that are assumed in its expected loss
estimates; deterioration in the financial condition of Assured
Guaranty’s reinsurers, the amount and timing of reinsurance recoverables
actually received and the risk that reinsurers may dispute amounts owed
to Assured Guaranty under its reinsurance agreements; increased
competition, including from new entrants into the financial guaranty
industry; rating agency action on obligors, including sovereign debtors,
resulting in a reduction in the value of securities in Assured
Guaranty's investment portfolio and in collateral posted by and to
Assured Guaranty; the inability of Assured Guaranty to access external
sources of capital on acceptable terms; changes in the world’s credit
markets, segments thereof, interest rates or general economic
conditions; the impact of market volatility on the mark-to-market of
Assured Guaranty’s contracts written in credit default swap form;
changes in applicable accounting policies or practices; changes in
applicable laws or regulations, including insurance, bankruptcy and tax
laws, or other governmental actions; 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; other risks and uncertainties that have not been
identified at this time; management’s response to these factors; and
other risk factors identified in AGL’s filings with the U.S. Securities
and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking
statements are made as of May 4, 2016, 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.
