Assured Guaranty (AGO) 8-KAssured Guaranty Ltd. Reports Results for Third Quarter 2024

Hamilton, Bermuda, November 11, 2024 -- Assured Guaranty Ltd. (NYSE: AGO) (AGL and, together with its subsidiaries, Assured Guaranty or the Company) announced today its financial results for the three-month period ended September 30, 2024 (third quarter 2024).

“Assured Guaranty has continued to build both shareholder and policyholder value this year,” said Dominic Frederico, President and CEO. “Shareholders’ equity per share on September 30, 2024 was a record $111.09. Adjusted book value per share also set a record at $166.47, as did adjusted operating shareholders’ equity per share at $113.96. For the first three quarters, net income has increased to $6.44 per share, up 8% year-over-year, and adjusted operating income reached $5.80 per share, up 13% year-over-year.

“New business production has been strong this year. GWP and PVP for the first three quarters reached $254 million and $281 million, respectively, which were $33 million and $32 million higher than for last year’s comparable period. Municipal production benefited from greater overall issuance and solid investor demand. We also saw significant contributions from our non-U.S. public finance and global structured finance businesses. After the merger of AGM into AG (formerly AGC) in the third quarter, we believe the new AG is positioned for significant growth, as we pursue further expansion into new product and geographic markets.

“In our capital management program, as of November 8, 2024, the Company had repurchased 10% of the shares that were outstanding on December 31, 2023, and in November our board authorized an additional $250 million of share repurchases.”

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On a per share basis, shareholders’ equity attributable to AGL increased to $111.09 as of September 30, 2024 from $101.63 as of December 31, 2023, primarily due to net income, unrealized gains in the investment portfolio and share repurchases, partially offset by dividends. On a per share basis, ABV increased to $166.47 primarily due to adjusted operating income, new business production and share repurchases, partially offset by dividends.

The Insurance segment primarily consists of (i) 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, excluding the effect of VIE consolidations, and (ii) Assured Guaranty Inc.’s (AG, formerly Assured Guaranty Corp.) investment subsidiary.

U.S. public finance GWP and PVP in third quarter 2024 were higher than the comparable GWP and PVP in third quarter 2023, primarily due to an increase in insured par and higher premium rates on primary market transactions. The Company’s direct par written represented 60% of the total U.S. municipal market insured issuance in third quarter 2024, compared with 61% in third quarter 2023, and the Company’s penetration of all municipal issuance was 4.2% in third quarter 2024 compared with 4.6% in third quarter 2023.

In third quarter 2024, non-U.S. public finance GWP and PVP were higher than GWP and PVP in third quarter 2023, primarily due to guaranties of several United Kingdom (U.K.) regulated utility and airport transactions in third quarter 2024.

Global structured finance GWP and PVP in third quarter 2024 were higher than the comparable GWP and PVP in third quarter 2023. In third quarter 2024, the Company insured a transaction in Australia that provided protection on an approximately $600 million core lending portfolio for an Australian bank.

Insurance segment adjusted operating income increased to $162 million in third quarter 2024 from $59 million in third quarter 2023, primarily due to a benefit in loss expense in third quarter 2024. This was offset in part by lower net investment income and a $6 million write-off of insurance licenses in connection with the merger of the U.S. insurance subsidiaries Assured Guaranty Municipal Corp. and AG on August 1, 2024.

The components of the Insurance segment’s premiums, losses and income from the investment portfolio are presented below.

Loss expense is a function of net economic loss development (benefit) and deferred premium revenue. The difference between loss expense and economic development in a given period represents the amount of deferred premium revenue absorbing expected losses to be paid.

The table below presents the roll forward of net expected losses for third quarter 2024.

The net economic benefit was $34 million in third quarter 2024, and was primarily attributable to improved recovery assumptions in U.S. RMBS and improvements in certain healthcare transactions, offset in part by an increase in expected losses on certain U.K. regulated utilities. The effect of changes in risk-free rates used to discount expected losses was a loss of $3 million.

Net investment income, which represents interest income on available-for-sale fixed-maturity debt and short-term investments, decreased to $82 million in third quarter 2024 from $101 million in third quarter 2023 primarily due to lower income on loss mitigation securities.

As of September 30, 2024, the Insurance segment had $720 million in alternative investments. In the Insurance segment, alternative investments consist primarily of funds managed by Sound Point and AHP, and are generally recorded at net asset value (NAV), with changes in NAV reported in “equity in earnings (losses) of investees.” Equity in earnings of investees is more volatile than net investment income on available-for-sale fixed-maturity securities and short-term investments. To the extent that the amounts invested in alternative fund investments increase and available-for-sale fixed-maturity securities decrease, net investment income may decline and mark-to-market volatility related to equity in earnings of investees may increase.

The inception-to-date annualized internal rate of return for all alternative investments, which are primarily in the Insurance segment and Corporate division, was approximately 13%.

Since July 2023, the Company participates in the asset management business through its ownership interest in Sound Point. In third quarter 2024 asset management adjusted operating income of $4 million was primarily due to the Company’s ownership interest in Sound Point, including the amortization of intangible assets, as well as certain ongoing performance fees. Sound Point’s results are reported on a one quarter lag and are included in “equity in earnings (losses) of investees.”

Corporate division adjusted operating income in third quarter 2023 included a pre-tax gain resulting from the Sound Point and AHP transactions of $241 million, which was net of $14 million in transaction costs (primarily advisory and legal expenses reported in other operating expenses).

As part of the share redemption that occurred on August 5, 2024, AG transferred certain alternative investments to Assured Guaranty Municipal Holdings Inc., whose results are now reported in the corporate division.

The following table presents a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Non-credit impairment-related unrealized fair value gains on credit derivatives in third quarter 2023 were primarily generated by lower collateral asset spreads. Except for credit impairment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Fair value losses on CCS in both periods were primarily due to a tightening in market spreads. 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 is not expected to result in an economic gain or loss.

Foreign exchange gains (losses) primarily relate to the remeasurement of premiums receivable and are mainly due to changes in the exchange rate relative to the U.S. dollar of the pound sterling and, to a lesser extent, the euro.

On November 8, 2024, AGL’s Board of Directors (the Board) authorized the repurchase of an additional $250 million of the Company’s common shares. From the beginning of the repurchase program in 2013 through November 8, 2024, the Company has repurchased a total of 150 million common shares for $5.3 billion, representing approximately 77% of the total shares outstanding as of January 1, 2013. As of November 8, 2024, the Company was authorized to purchase approximately $385 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 at any time. It does not have an expiration date.

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:

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.

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:

See “Reconciliation to GAAP” above for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

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:

Management uses adjusted book value, further adjusted to remove the effect of 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:

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.

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. 

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.

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:

(i) 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 or stagflation; (ii) geopolitical risk, terrorism and political violence risk, including those arising out of Russia’s invasion of Ukraine and intentional or accidental escalation between The North Atlantic Treaty Organization (NATO) and Russia, conflict in the Middle East and confrontation over Iran’s nuclear program, the polarized political environment in the United States (U.S.), and U.S. – China strategic competition; (iii) cybersecurity risk and the impacts of artificial intelligence, machine learning and other technological advances, including potentially increasing the risks of malicious cyber attacks, dissemination of misinformation, and disruption of markets; (iv) the possibility of a U.S. government shutdown, payment defaults on the debt of the U.S. government or instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, and downgrades to their credit ratings; (v) developments in the world’s financial and capital markets, including stresses in the financial condition of banking institutions in the U.S. and the possibility that increasing participation of unregulated financial institutions in these markets results in losses or lower valuations of assets, reduced liquidity and credit and/or contraction of these markets, that adversely affect repayment rates of insured obligors, Assured Guaranty’s insurance loss or recovery experience, or investments of Assured Guaranty; (vi) reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty’s insurance; (vii) the possibility that budget or pension shortfalls, difficulties in obtaining additional financing or other factors will result in credit losses or liquidity claims on obligations of state, territorial and local governments, their related authorities, public corporations and other obligors that Assured Guaranty insures or reinsures; (viii) insured losses, including losses with respect to related legal proceedings, 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 final resolution of Assured Guaranty’s Puerto Rico Electric Power Authority (PREPA) exposure or the amounts recovered on securities received in connection with the resolution of Puerto Rico exposures already resolved; (ix) the impact of Assured Guaranty satisfying its obligations under insurance policies with respect to legacy insured Puerto Rico bonds; (x) the possibility that underwriting insurance in new jurisdictions and/or covering new sectors or classes of business does not result in the benefits anticipated or subjects Assured Guaranty to negative consequences; (xi) increased competition, including from new entrants into the financial guaranty industry, nonpayment insurance and other forms of capital saving or risk syndication available to banks and insurers; (xii) the possibility that investments made by Assured Guaranty for its investment portfolio, including alternative investments, do not result in the benefits anticipated or subject Assured Guaranty to reduced liquidity at a time it requires liquidity, or to other negative or unanticipated consequences; (xiii) the impacts of Assured Guaranty’s transactions with Sound Point Capital Management, LP (Sound Point, LP) and certain of its investment management affiliates (together with Sound Point, LP, Sound Point) and/or Assured Healthcare Partners LLC (AHP) on Assured Guaranty and its relationships with its shareholders, regulators, rating agencies, employees and the obligors it insures and on the asset management business contributed to Sound Point, LP and on the business of AHP and their relationships with their respective clients and employees; (xiv) the possibility that strategic transactions made by Assured Guaranty, including the transactions with Sound Point and/or AHP and/or merger of Assured Guaranty Municipal Corp. (AGM) with and into Assured Guaranty Inc. (AG, formerly Assured Guaranty Corp.), do not result in the benefits anticipated or subject Assured Guaranty to negative consequences; (xv) the inability to control the business, management or policies of entities in which Assured Guaranty holds a minority interest; (xvi) the impact of market volatility on the fair value of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, contracts accounted for as derivatives, its committed capital securities, its consolidated investment vehicles and certain consolidated variable interest entities (VIEs); (xvii) rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for

Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of November 11, 2024, 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.

Robert Tucker

Senior Managing Director, Investor Relations and Corporate Communications

212-339-0861

Ashweeta Durani

Director, Media Relations

212-408-6042