Assured Guaranty Ltd. Reports Results for Second Quarter 2023
-
GAAP Highlights:
-
Net income attributable to Assured Guaranty Ltd. was
, or$125 million per share,(1) for second quarter 2023.$2.06 -
Shareholders’ equity attributable to Assured Guaranty Ltd. per share was
as of June 30, 2023.$89.65
-
Net income attributable to Assured Guaranty Ltd. was
-
Non-GAAP Highlights:
-
Adjusted operating income(2) was
, or$36 million per share, for second quarter 2023.$0.60 -
Adjusted operating shareholders’ equity(2) per share and adjusted book value (ABV)(2) per share were
and$95.64 , respectively, as of June 30, 2023.$144.21
-
Adjusted operating income(2) was
-
Return of Capital to Shareholders:
-
Second quarter 2023 capital returned to shareholders was
including share repurchases of$41 million and dividends of$24 million .$17 million
-
Second quarter 2023 capital returned to shareholders was
-
Insurance Segment:
-
Insurance segment adjusted operating income was
for second quarter 2023.$106 million -
Gross written premiums (GWP) were
for second quarter 2023.$95 million -
Present value of new business production (PVP)(2) was
for second quarter 2023.$91 million
-
Insurance segment adjusted operating income was
“New business production for the second quarter and first half remained strong, consistent with recent years’ results, and was diversified across
“Also, in July 2023, we completed our transaction with Sound Point Capital Management, LP involving AssuredIM, taking a
(1) |
|
Per share information for net income and adjusted operating income is based on diluted shares. |
(2) |
|
Please see “Explanation of Non-GAAP Financial Measures.” |
Summary Financial Results |
|||||||
(in millions, except per share amounts) |
|||||||
|
|
||||||
|
Quarter Ended |
||||||
|
June 30, |
||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
||||
GAAP (1) |
|
|
|
||||
Net income (loss) attributable to AGL |
$ |
125 |
|
|
$ |
(47 |
) |
Net income (loss) attributable to AGL per diluted share |
$ |
2.06 |
|
|
$ |
(0.74 |
) |
Weighted average diluted shares (2) |
|
60.1 |
|
|
|
63.8 |
|
|
|
|
|
||||
Non-GAAP |
|
|
|
||||
Adjusted operating income (loss) (3) |
$ |
36 |
|
|
$ |
30 |
|
Adjusted operating income per diluted share (3) |
$ |
0.60 |
|
|
$ |
0.46 |
|
Weighted average diluted shares |
|
60.1 |
|
|
|
65.0 |
|
|
|
|
|
||||
Gain (loss) related to FG VIE and CIV consolidation (4) included in adjusted operating income |
$ |
(18 |
) |
|
$ |
10 |
|
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share |
$ |
(0.30 |
) |
|
$ |
0.15 |
|
|
|
|
|
||||
Components of total adjusted operating income (loss) |
|
|
|
||||
Insurance segment |
$ |
106 |
|
|
$ |
55 |
|
Asset Management segment |
|
(2 |
) |
|
|
— |
|
Corporate division |
|
(50 |
) |
|
|
(35 |
) |
Other |
|
(18 |
) |
|
|
10 |
|
Adjusted operating income (loss) |
$ |
36 |
|
|
$ |
30 |
|
|
As of |
||||||||||
|
June 30, 2023 |
|
December 31, 2022 |
||||||||
|
Amount |
|
Per Share |
|
Amount |
|
Per Share |
||||
|
|
|
|
|
|
|
|
||||
Shareholders’ equity attributable to AGL |
$ |
5,276 |
|
$ |
89.65 |
|
$ |
5,064 |
|
$ |
85.80 |
Adjusted operating shareholders’ equity (3) |
|
5,628 |
|
|
95.64 |
|
|
5,543 |
|
|
93.92 |
ABV (3) |
|
8,487 |
|
|
144.21 |
|
|
8,379 |
|
|
141.98 |
|
|
|
|
|
|
|
|
||||
Common Shares Outstanding |
|
58.9 |
|
|
|
|
59.0 |
|
|
(1) |
|
Generally accepted accounting principles in |
(2) |
|
In periods where the Company recognized a net loss, the impact of potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect. |
(3) |
|
Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release. |
(4) |
|
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 increased to
Insurance Segment
The Insurance segment primarily consists of the Company’s insurance subsidiaries that provide credit protection products to
Insurance Segment Results |
||||||
(in millions) |
||||||
|
|
|||||
|
Quarter Ended |
|||||
|
June 30, |
|||||
|
|
2023 |
|
|
2022 |
|
Segment revenues |
|
|
|
|||
Net earned premiums and credit derivative revenues |
$ |
88 |
|
$ |
86 |
|
Net investment income |
|
90 |
|
|
66 |
|
Fair value gains (losses) on trading securities |
|
40 |
|
|
(18 |
) |
Foreign exchange gains (losses) on remeasurement and other income (loss) |
|
6 |
|
|
5 |
|
Total segment revenues |
|
224 |
|
|
139 |
|
|
|
|
|
|||
Segment expenses |
|
|
|
|||
Loss expense (benefit) |
|
44 |
|
|
(17 |
) |
Amortization of deferred acquisition costs (DAC) |
|
3 |
|
|
3 |
|
Employee compensation and benefit expenses |
|
36 |
|
|
35 |
|
Other operating expenses |
|
27 |
|
|
20 |
|
Total segment expenses |
|
110 |
|
|
41 |
|
Equity in earnings (losses) of investees |
|
5 |
|
|
(34 |
) |
Segment adjusted operating income (loss) before income taxes |
|
119 |
|
|
64 |
|
Less: Provision (benefit) for income taxes |
|
13 |
|
|
9 |
|
Segment adjusted operating income (loss) |
$ |
106 |
|
$ |
55 |
|
Insurance segment adjusted operating income increased to
Insurance Segment Net Earned Premiums and Credit Derivative Revenues
Insurance Segment |
|||||
Net Earned Premiums and Credit Derivative Revenues |
|||||
(in millions) |
|||||
|
|
||||
|
Quarter Ended |
||||
|
June 30, |
||||
|
|
2023 |
|
|
2022 |
Scheduled net earned premiums and credit derivative revenues |
$ |
80 |
|
$ |
81 |
Accelerations |
|
8 |
|
|
5 |
Total |
$ |
88 |
|
$ |
86 |
Insurance Segment Loss Expense (Benefit) and the Roll Forward of Expected Losses
Loss expense is a function of economic loss development (benefit), as well as the amortization of deferred premium revenue.
Insurance Segment |
|||||||
Loss Expense (Benefit) |
|||||||
(in millions) |
|||||||
|
|
||||||
|
Quarter Ended |
||||||
|
June 30, |
||||||
|
|
2023 |
|
|
|
2022 |
|
Public finance |
$ |
45 |
|
|
$ |
11 |
|
|
|
(3 |
) |
|
|
(28 |
) |
Other structured finance |
|
2 |
|
|
|
— |
|
Total |
$ |
44 |
|
|
$ |
(17 |
) |
The table below presents the roll forward of expected losses for second quarter 2023.
Roll Forward of Net Expected Loss to be Paid (Recovered) (1) |
|||||||||||||
(in millions) |
|||||||||||||
|
|
|
|
|
|
|
|
||||||
|
Net Expected
|
|
Economic Loss
|
|
Net (Paid)
|
|
Net Expected
|
||||||
|
|
|
|
|
|
|
|
||||||
Public finance |
$ |
393 |
|
$ |
54 |
|
|
$ |
(4 |
) |
|
$ |
443 |
|
|
82 |
|
|
(9 |
) |
|
|
— |
|
|
|
73 |
Other structured finance |
|
42 |
|
|
4 |
|
|
|
(2 |
) |
|
|
44 |
Total |
$ |
517 |
|
$ |
49 |
|
|
$ |
(6 |
) |
|
$ |
560 |
(1) |
|
Economic loss development (benefit) represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts, each net of reinsurance. Economic loss development (benefit) is the principal measure that the Company uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid (recovered) includes all transactions insured by the Company, regardless of the accounting model prescribed under GAAP and without consideration of deferred premium revenue. |
The economic loss development in second quarter 2023 of
Insurance Segment Income from Investment Portfolio
Insurance Segment |
||||||
Income from Investment Portfolio |
||||||
(in millions) |
||||||
|
|
|||||
|
Quarter Ended |
|||||
|
June 30, |
|||||
|
|
2023 |
|
|
2022 |
|
Net investment income |
$ |
90 |
|
$ |
66 |
|
Fair value gains (losses) on trading securities (1) |
|
40 |
|
|
(18 |
) |
Equity in earnings (losses) of investees: |
|
|
|
|||
AssuredIM Funds (2) |
|
— |
|
|
(33 |
) |
Other alternative investments |
|
5 |
|
|
(1 |
) |
Total |
$ |
135 |
|
$ |
14 |
|
(1) |
|
Contingent value instruments (CVIs) issued by |
(2) |
|
Funds managed by Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM). |
Net investment income, which represents interest income on fixed-maturity debt securities and short-term investments, was higher in second quarter 2023 compared to second quarter 2022 primarily due to higher short-term interest rates and higher average balances in short-term investments, higher income on loss mitigation securities, as well as higher income on floating rate assets in the available-for-sale investment portfolio.
In the Insurance segment, investments in AssuredIM Funds are recorded at net asset value (NAV), with the change in NAV reported in “equity in earnings (losses) of investees.” As of June 30, 2023, the Insurance segment had invested
Insurance Segment New Business Production
Insurance Segment |
|||||||||||||||||
New Business Production |
|||||||||||||||||
(in millions) |
|||||||||||||||||
|
|
||||||||||||||||
|
Quarter Ended June 30, |
||||||||||||||||
|
2023 |
|
2022 |
||||||||||||||
|
GWP |
|
PVP (1) |
|
Gross Par
|
|
GWP |
|
PVP (1) |
|
Gross Par
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Public finance - |
$ |
78 |
|
$ |
77 |
|
$ |
7,747 |
|
$ |
57 |
|
$ |
57 |
|
$ |
6,429 |
Public finance - non- |
|
9 |
|
|
6 |
|
|
249 |
|
|
6 |
|
|
18 |
|
|
207 |
Structured finance - |
|
5 |
|
|
3 |
|
|
252 |
|
|
1 |
|
|
— |
|
|
16 |
Structured finance - non- |
|
3 |
|
|
5 |
|
|
726 |
|
|
1 |
|
|
1 |
|
|
43 |
Total |
$ |
95 |
|
$ |
91 |
|
$ |
8,974 |
|
$ |
65 |
|
$ |
76 |
|
$ |
6,695 |
(1) |
|
PVP, a non-GAAP financial measure, measures the value of the Insurance segment’s new business production for all contracts regardless of form or GAAP accounting model. See “Explanation of Non-GAAP Financial Measures” at the end of this press release. PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. |
In non-
Business activity in the non-
Asset Management Segment
Until July 1, 2023, the Company served as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, as well as certain legacy hedge and opportunity funds subject to an orderly wind-down, through AssuredIM. Beginning July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point as previously disclosed. In July 2023, Assured Guaranty also sold all of its equity interests in AHP to an entity owned and controlled by the managing partner of AHP.
In the first half of 2023, while the Sound Point transaction and sale of AHP were pending, the Company was limited in its ability to raise third party assets under management (AUM) due to regulatory and practical considerations. AUM as of June 30, 2023 was
Asset Management Segment Results |
|||||||
(in millions) |
|||||||
|
|
||||||
|
Quarter Ended |
||||||
|
June 30, |
||||||
|
|
2023 |
|
|
|
2022 |
|
Segment revenues |
|
|
|
||||
Management fees |
$ |
18 |
|
|
$ |
27 |
|
Performance fees |
|
9 |
|
|
|
2 |
|
Foreign exchange gains (losses) on remeasurement and other income (loss) |
|
3 |
|
|
|
(1 |
) |
Total segment revenues |
|
30 |
|
|
|
28 |
|
|
|
|
|
||||
Segment expenses |
|
|
|
||||
Interest expense |
|
1 |
|
|
|
— |
|
Employee compensation and benefit expenses |
|
25 |
|
|
|
17 |
|
Other operating expenses (1) |
|
7 |
|
|
|
11 |
|
Total segment expenses |
|
33 |
|
|
|
28 |
|
Segment adjusted operating income (loss) before income taxes |
|
(3 |
) |
|
|
— |
|
Less: Provision (benefit) for income taxes |
|
(1 |
) |
|
|
— |
|
Segment adjusted operating income (loss) |
$ |
(2 |
) |
|
$ |
— |
|
(1) |
|
Includes amortization of intangible assets of |
Corporate Division
The Corporate division primarily consists of interest expense on the debt of Assured Guaranty US Holdings Inc. and Assured Guaranty Municipal Holdings Inc., as well as other operating expenses attributed to holding company activities. Adjusted operating loss for the Corporate division was
Other (Effect of FG VIE and CIV consolidation)
The effect of consolidating FG VIEs and CIVs was a loss of
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 |
||||||||||||||
|
June 30, |
||||||||||||||
|
2023 |
|
|
2022 |
|
||||||||||
|
Total |
|
Per Diluted
|
|
Total |
|
Per Diluted
|
||||||||
Net income (loss) attributable to AGL |
$ |
125 |
|
|
$ |
2.06 |
|
|
$ |
(47 |
) |
|
$ |
(0.74 |
) |
Less pre-tax adjustments: |
|
|
|
|
|
|
|
||||||||
Realized gains (losses) on investments |
|
(9 |
) |
|
|
(0.14 |
) |
|
|
(28 |
) |
|
|
(0.43 |
) |
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives |
|
90 |
|
|
|
1.48 |
|
|
|
6 |
|
|
|
0.09 |
|
Fair value gains (losses) on committed capital securities (CCS) |
|
1 |
|
|
|
0.00 |
|
|
|
10 |
|
|
|
0.15 |
|
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and loss adjustment expense (LAE) reserves |
|
26 |
|
|
|
0.43 |
|
|
|
(73 |
) |
|
|
(1.14 |
) |
Total pre-tax adjustments |
|
108 |
|
|
|
1.77 |
|
|
|
(85 |
) |
|
|
(1.33 |
) |
Less tax effect on pre-tax adjustments |
|
(19 |
) |
|
|
(0.31 |
) |
|
|
8 |
|
|
|
0.13 |
|
Adjusted operating income (loss) |
$ |
36 |
|
|
$ |
0.60 |
|
|
$ |
30 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
||||||||
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income |
$ |
(18 |
) |
|
$ |
(0.30 |
) |
|
$ |
10 |
|
|
$ |
0.15 |
|
Non-credit impairment-related unrealized fair value gains on credit derivatives in second quarter 2023 were primarily generated by lower collateral asset spreads. In second quarter 2022, non-credit impairment-related unrealized fair value gains on credit derivatives were primarily generated by the increased cost to buy protection on Assured Guaranty Corp. (AGC), as the market cost of AGC’s credit protection increased during the period, and changes in discount rates; these gains were partially offset by an increase in the credit spread of certain underlying reference obligations. Except for credit impairment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.
Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.
Foreign exchange gains (losses) in both periods primarily relate to remeasurement of premiums receivable and are mainly due to changes in the exchange rate relative to the
Common Share Repurchases
From 2013 through August 8, 2023, the Company repurchased a total of 142 million common shares at an average price of
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 |
||||||
|
June 30, |
||||||
|
|
2023 |
|
|
|
2022 |
|
Revenues |
|
|
|
||||
Net earned premiums |
$ |
85 |
|
|
$ |
82 |
|
Net investment income |
|
89 |
|
|
|
62 |
|
Asset management fees |
|
27 |
|
|
|
21 |
|
Net realized investment gains (losses) |
|
(9 |
) |
|
|
(28 |
) |
Fair value gains (losses) on credit derivatives |
|
91 |
|
|
|
9 |
|
Fair value gains (losses) on CCS |
|
1 |
|
|
|
10 |
|
Fair value gains (losses) on FG VIEs |
|
(3 |
) |
|
|
10 |
|
Fair value gains (losses) on CIVs |
|
6 |
|
|
|
3 |
|
Foreign exchange gain (loss) on remeasurement |
|
28 |
|
|
|
(71 |
) |
Fair value gains (losses) on trading securities |
|
40 |
|
|
|
(18 |
) |
Other income (loss) |
|
5 |
|
|
|
10 |
|
Total revenues |
|
360 |
|
|
|
90 |
|
Expenses |
|
|
|
||||
Loss and LAE (benefit) |
|
55 |
|
|
|
(11 |
) |
Interest expense |
|
22 |
|
|
|
20 |
|
Amortization of DAC |
|
3 |
|
|
|
3 |
|
Employee compensation and benefit expenses |
|
70 |
|
|
|
59 |
|
Other operating expenses |
|
71 |
|
|
|
41 |
|
Total expenses |
|
221 |
|
|
|
112 |
|
Income (loss) before income taxes and equity in earnings (losses) of investees |
|
139 |
|
|
|
(22 |
) |
Equity in earnings (losses) of investees |
|
5 |
|
|
|
— |
|
Income (loss) before income taxes |
|
144 |
|
|
|
(22 |
) |
Less: Provision (benefit) for income taxes |
|
18 |
|
|
|
3 |
|
Net income (loss) |
|
126 |
|
|
|
(25 |
) |
Less: Noncontrolling interests |
|
1 |
|
|
|
22 |
|
Net income (loss) attributable to AGL |
$ |
125 |
|
|
$ |
(47 |
) |
Condensed Consolidated Balance Sheets (unaudited) |
|||||||
(in millions) |
|||||||
|
|
||||||
|
As of |
||||||
|
June 30, 2023 |
|
December 31, 2022 |
||||
Assets |
|
|
|
||||
Investments: |
|
|
|
||||
Fixed-maturity securities available-for-sale, at fair value |
$ |
6,488 |
|
|
$ |
7,119 |
|
Fixed-maturity securities, trading, at fair value |
|
340 |
|
|
|
303 |
|
Short-term investments, at fair value |
|
1,650 |
|
|
|
810 |
|
Other invested assets |
|
146 |
|
|
|
133 |
|
Total investments |
|
8,624 |
|
|
|
8,365 |
|
Cash |
|
114 |
|
|
|
107 |
|
Premiums receivable, net of commissions payable |
|
1,417 |
|
|
|
1,298 |
|
DAC |
|
155 |
|
|
|
147 |
|
Salvage and subrogation recoverable |
|
266 |
|
|
|
257 |
|
FG VIEs’ assets, at fair value |
|
414 |
|
|
|
416 |
|
Assets of CIVs |
|
5,055 |
|
|
|
5,493 |
|
Goodwill and other intangible assets |
|
6 |
|
|
|
163 |
|
Assets held for sale |
|
221 |
|
|
|
— |
|
Other assets |
|
580 |
|
|
|
597 |
|
Total assets |
$ |
16,852 |
|
|
$ |
16,843 |
|
|
|
|
|
||||
Liabilities |
|
|
|
||||
Unearned premium reserve |
$ |
3,648 |
|
|
$ |
3,620 |
|
Loss and LAE reserve |
|
349 |
|
|
|
296 |
|
Long-term debt |
|
1,677 |
|
|
|
1,675 |
|
Credit derivative liabilities, at fair value |
|
58 |
|
|
|
163 |
|
FG VIEs’ liabilities, at fair value |
|
699 |
|
|
|
715 |
|
Liabilities of CIVs |
|
4,460 |
|
|
|
4,625 |
|
Liabilities held for sale |
|
50 |
|
|
|
— |
|
Other liabilities |
|
456 |
|
|
|
457 |
|
Total liabilities |
|
11,397 |
|
|
|
11,551 |
|
|
|
|
|
||||
Shareholders’ equity |
|
|
|
||||
Common shares |
|
1 |
|
|
|
1 |
|
Retained earnings |
|
5,732 |
|
|
|
5,577 |
|
Accumulated other comprehensive income (loss) |
|
(458 |
) |
|
|
(515 |
) |
Deferred equity compensation |
|
1 |
|
|
|
1 |
|
Total shareholders’ equity attributable to AGL |
|
5,276 |
|
|
|
5,064 |
|
Nonredeemable noncontrolling interests |
|
179 |
|
|
|
228 |
|
Total shareholders’ equity |
|
5,455 |
|
|
|
5,292 |
|
Total liabilities and shareholders’ equity |
$ |
16,852 |
|
|
$ |
16,843 |
|
Explanation of Non-GAAP Financial Measures
The Company discloses both: (i) financial measures determined in accordance with GAAP; and (ii) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitation of non-GAAP financial measures is the potential lack of comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of the Company.
The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results.
GAAP requires the Company to consolidate entities where it is deemed to be the primary beneficiary which include:
- FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and
- CIVs in which certain subsidiaries invest.
The Company discloses the effect of FG VIE and CIV consolidation that is embedded in each non-GAAP financial measure, as applicable. The Company believes this information may also be useful to analysts and investors evaluating Assured Guaranty’s financial results. In the case of both the consolidated FG VIEs and the CIVs, the economic effect on the Company of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.
Management of the Company and AGL’s Board of Directors use non-GAAP financial measures further adjusted to remove the effect of FG VIE and CIV consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. The Company uses core financial measures in its decision-making process for and in its calculation of certain components of management compensation. The financial measures that the Company uses to help determine compensation are: (1) adjusted operating income, further adjusted to remove the effect of FG VIE and CIV consolidation; (2) adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation; (3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation; and (4) PVP.
Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Management also believes that many of the Company’s fixed income investors also use adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation, to evaluate the Company’s capital adequacy.
Adjusted operating income, further adjusted for the effect of FG VIE and CIV consolidation, enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.
The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful. To the extent there is a directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below.
Adjusted Operating Income
Management believes that adjusted operating income is a useful measure because it clarifies the understanding of the operating results of the Company. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:
1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.
2) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss.
3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt and other market factors and are not expected to result in an economic gain or loss.
4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize.
5) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
See “Reconciliation to GAAP” above for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).
Adjusted Operating Shareholders’ Equity and Adjusted Book Value
Management believes that adjusted operating shareholders’ equity is a useful measure because it excludes the fair value adjustments on investments, credit derivatives and CCS that are not expected to result in economic gain or loss.
Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:
1) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.
2) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.
3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore would not recognize an economic gain or loss.
4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
Management uses adjusted book value, further adjusted 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 Shareholders’ Equity Attributable to AGL to |
|||||||||||||||
Adjusted Operating Shareholders’ Equity and ABV |
|||||||||||||||
(in millions, except per share amounts) |
|||||||||||||||
|
|
||||||||||||||
|
As of |
||||||||||||||
|
June 30, 2023 |
|
December 31, 2022 |
||||||||||||
|
Total |
|
Per Share |
|
Total |
|
Per Share |
||||||||
|
|
|
|
|
|
|
|
||||||||
Shareholders’ equity attributable to AGL |
$ |
5,276 |
|
|
$ |
89.65 |
|
|
$ |
5,064 |
|
|
$ |
85.80 |
|
Less pre-tax adjustments: |
|
|
|
|
|
|
|
||||||||
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives |
|
31 |
|
|
|
0.52 |
|
|
|
(71 |
) |
|
|
(1.21 |
) |
Fair value gains (losses) on CCS |
|
32 |
|
|
|
0.54 |
|
|
|
47 |
|
|
|
0.80 |
|
Unrealized gain (loss) on investment portfolio |
|
(463 |
) |
|
|
(7.88 |
) |
|
|
(523 |
) |
|
|
(8.86 |
) |
Less taxes |
|
48 |
|
|
|
0.83 |
|
|
|
68 |
|
|
|
1.15 |
|
Adjusted operating shareholders’ equity |
|
5,628 |
|
|
|
95.64 |
|
|
|
5,543 |
|
|
|
93.92 |
|
Pre-tax adjustments: |
|
|
|
|
|
|
|
||||||||
Less: DAC |
|
155 |
|
|
|
2.63 |
|
|
|
147 |
|
|
|
2.48 |
|
Plus: Net present value of estimated net future revenue |
|
192 |
|
|
|
3.27 |
|
|
|
157 |
|
|
|
2.66 |
|
Plus: Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed |
|
3,445 |
|
|
|
58.53 |
|
|
|
3,428 |
|
|
|
58.10 |
|
Plus taxes |
|
(623 |
) |
|
|
(10.60 |
) |
|
|
(602 |
) |
|
|
(10.22 |
) |
ABV |
$ |
8,487 |
|
|
$ |
144.21 |
|
|
$ |
8,379 |
|
|
$ |
141.98 |
|
|
|
|
|
|
|
|
|
||||||||
Gain (loss) related to FG VIE and CIV consolidation included in: |
|
|
|
|
|
|
|
||||||||
Adjusted operating shareholders’ equity |
$ |
(3 |
) |
|
$ |
(0.04 |
) |
|
$ |
17 |
|
|
$ |
0.28 |
|
ABV |
|
(7 |
) |
|
|
(0.12 |
) |
|
|
11 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
||||||||
Shares outstanding at the end of the period |
|
58.9 |
|
|
|
|
|
59.0 |
|
|
|
Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because it enables an evaluation of the present value of estimated net future revenue for non-financial guaranty insurance contracts. This amount represents the net present value of estimated future revenue from these contracts (other than credit derivatives with net expected losses), net of reinsurance, ceding commissions and premium taxes.
Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than Loss Mitigation Securities. The discount rate is recalculated annually and updated as necessary. Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation. There is no corresponding GAAP financial measure.
PVP or Present Value of New Business Production
Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production in the Insurance segment by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premiums and fees on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), regardless of form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure. PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums.
Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as Loss Mitigation Securities. The discount rate is recalculated annually and updated as necessary. Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction.
Actual installment premiums may differ from those estimated in the Company’s PVP calculation due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.
Reconciliation of GWP to PVP |
|||||||||||||||
(in millions) |
|||||||||||||||
|
|
|
|||||||||||||
|
|
Quarter Ended |
|||||||||||||
|
|
June 30, 2023 |
|||||||||||||
|
|
Public Finance |
|
Structured Finance |
|
|
|||||||||
|
|
|
|
Non - |
|
|
|
Non - |
|
Total |
|||||
GWP |
|
$ |
78 |
|
$ |
9 |
|
$ |
5 |
|
$ |
3 |
|
$ |
95 |
Less: Installment GWP and other GAAP adjustments (1) |
|
|
41 |
|
|
9 |
|
|
5 |
|
|
3 |
|
|
58 |
Upfront GWP |
|
|
37 |
|
|
— |
|
|
— |
|
|
— |
|
|
37 |
Plus: Installment premiums and other (2) |
|
|
40 |
|
|
6 |
|
|
3 |
|
|
5 |
|
|
54 |
PVP |
|
$ |
77 |
|
$ |
6 |
|
$ |
3 |
|
$ |
5 |
|
$ |
91 |
|
|
Quarter Ended |
|||||||||||||
|
|
June 30, 2022 |
|||||||||||||
|
|
Public Finance |
|
Structured Finance |
|
|
|||||||||
|
|
|
|
Non - |
|
|
|
Non - |
|
Total |
|||||
GWP |
|
$ |
57 |
|
$ |
6 |
|
$ |
1 |
|
$ |
1 |
|
$ |
65 |
Less: Installment GWP and other GAAP adjustments (1) |
|
|
— |
|
|
6 |
|
|
1 |
|
|
1 |
|
|
8 |
Upfront GWP |
|
|
57 |
|
|
— |
|
|
— |
|
|
— |
|
|
57 |
Plus: Installment premiums and other (2) |
|
|
— |
|
|
18 |
|
|
— |
|
|
1 |
|
|
19 |
PVP |
|
$ |
57 |
|
$ |
18 |
|
$ |
— |
|
$ |
1 |
|
$ |
76 |
(1) |
|
Includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments. |
(2) |
|
Includes the present value of future premiums and fees on new business paid in installments, discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as Loss Mitigation Securities. |
Conference Call and Webcast Information
The Company will host a conference call for investors at 8:00 a.m. Eastern Time (9:00 a.m. Atlantic Time) on Wednesday, August 9, 2023. The conference call will be available via live webcast in the Investor Information section of the Company’s website at AssuredGuaranty.com or by dialing 1-844-200-6205 (in the
A replay of the conference call will be available approximately three hours after the call ends. The webcast replay will be available for 90 days in the Investor Information section of the Company’s website at AssuredGuaranty.com and the telephone replay will be available for 30 days by dialing 1-866-813-9403 (in the
Please refer to Assured Guaranty’s June 30, 2023 Financial Supplement, which is posted on the Company's website at assuredguaranty.com/agldata, for more information on the Company’s financial guaranty portfolio, investment portfolio and other items. In addition, the Company is posting at assuredguaranty.com/presentations its “June 30, 2023 Equity Investor Presentation”.
The Company plans to post by early next week on its website at assuredguaranty.com/agldata the following:
-
“Public Finance Transactions in 2Q 2023,” which lists the
U.S. public finance new issues insured by the Company in second quarter 2023, and - “Structured Finance Transactions at June 30, 2023,” which lists the Company’s structured finance exposure as of that date.
In addition, the Company will post on its website, when available, the Company’s separate-company subsidiary financial supplements and its “Fixed Income Presentation” for the current quarter. Those documents will be furnished to the Securities and Exchange Commission in a Current Report on Form 8-K.
Assured Guaranty Ltd. is a publicly traded (NYSE: AGO),
Cautionary Statement Regarding Forward-Looking Statements
Any forward-looking statements made in this press release reflect the Company’s current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among factors that could cause actual results to differ adversely are: (1) significant changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads, foreign exchange rates or general economic conditions, including the possibility of a recession; (2) geopolitical risk, including
View source version on businesswire.com: https://www.businesswire.com/news/home/20230807556446/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
Source: Assured Guaranty Ltd.