- Net income was $153 million, or
$1.24 per share, for second quarter 2017, compared with $146
million, or $1.09 per share, for second quarter 2016.
- Operating income1
(non-GAAP) was $141 million, or $1.16 per share, for second
quarter 2017, compared with $136 million, or $1.01 per share, for
second quarter 2016.
- Shareholders' equity per share,
non-GAAP operating shareholders' equity1 per share
and non-GAAP adjusted book value1 per share reached
new records at $56.40, $54.34 and $73.48,
respectively.
- Gross written premiums for second
quarter 2017 were $79 million and PVP1 was $70
million, representing increases of 119% and 71%, respectively, over
second quarter 2016.
- Share repurchases totaled $135
million, or 3.5 million shares, in second quarter 2017.
Assured Guaranty Ltd. (NYSE:AGO) (AGL and, together with its
consolidated entities, Assured Guaranty or the Company) announced
today its financial results for the three-month period ended June
30, 2017 (second quarter 2017).
1 Please see “Explanation of Non-GAAP Financial Measures.” When
a financial measure is described as "operating," it is a non-GAAP
financial measure. Starting in fourth quarter 2016, based on the
U.S. Securities and Exchange Commission (the SEC) 2016 Compliance
and Disclosure Interpretations on non-GAAP financial measures, the
Company is no longer adjusting for FG VIE consolidation in its
non-GAAP financial measures. The comparable non-GAAP financial
measures for prior periods have been updated to reflect the revised
calculation. The Company has separately disclosed the effect of FG
VIE consolidation that is now included in its non-GAAP financial
measures.
Summary Financial Results
(in millions, except per share
amounts)
Quarter Ended June 30, 2017
2016 Net income $ 153
$ 146 Operating income (non-GAAP)(1) 141 136 Gain
(loss) related to the effect of consolidating financial guaranty
variable interest entities (FG VIE consolidation) included in
operating income 5 (3 )
Net income per diluted share
$ 1.24 $ 1.09 Operating income
(non-GAAP)(1) per diluted share 1.16 1.01 Gain (loss) related to FG
VIE consolidation included in operating income per diluted share
0.05 (0.02 )
Diluted shares 122.7 134.8
Gross written premiums (GWP) $ 79
$ 36 Present value of new business production
(PVP)(1) 70 41 Gross par written 5,140 4,775
Summary Financial Results
(continued)
(in millions, except per share
amounts)
As of June 30, 2017 December
31, 2016 Amount Per Share Amount
Per Share Shareholders' equity $
6,750 $ 56.40 $ 6,504 $
50.82 Non-GAAP operating shareholders' equity(1) 6,502 54.34
6,386 49.89 Non-GAAP adjusted book value(1) 8,793 73.48 8,506 66.46
Gain (loss) related to FG VIE consolidation included in non-GAAP
operating shareholders' equity 3 0.03 (7 ) (0.06 ) Gain (loss)
related to FG VIE consolidation included in non-GAAP adjusted book
value (13 ) (0.10 ) (24 ) (0.18 )
Common shares
outstanding 119.7 128.0
________________________________________________
(1) Please see “Explanation of Non-GAAP Financial Measures” at
the end of this press release. The prior-year's quarterly non-GAAP
financial measures have been updated to reflect the revised
calculation as discussed in “Explanation of Non-GAAP Financial
Measures.”
“The second quarter of 2017 was highly successful for Assured
Guaranty,” said Dominic Frederico, President and CEO. “We saw an
increase in our financial strength, as well as in net income and
operating income, versus last year’s second quarter. With the
additional benefit of our share repurchase program over the last
year, net income and operating income per share grew 14% and 15%,
respectively. Additionally, our PVP increased 71% for the quarter
and 114% for the half, while we widened our lead in the U.S. public
finance primary market to 62% of par insured and continued our
success in writing new business in international infrastructure and
structured finance.”
Second Quarter Results
GAAP Financial Information
Net income for second quarter 2017 was $153 million, compared
with net income of $146 million for the three-month period ended
June 30, 2016 (second quarter 2016). The increase was primarily
attributable to lower loss and loss adjustment expenses (LAE), a
lower effective tax rate and changes in fair value of committed
capital securities (CCS) and FG VIEs, offset in part by changes in
fair value of credit derivatives and lower net earned premiums from
accelerations.
Loss and LAE was $72 million in second quarter 2017, compared
with $102 million in second quarter 2016. The decrease is due
mainly to lower reserve additions on Puerto Rico exposures.
The effective tax rate declined in second quarter 2017 compared
with second quarter 2016 due primarily to the release of $37
million tax reserves for uncertain tax positions, following the
closure of an Internal Revenue Service audit, and higher pre-tax
income in non-taxable jurisdictions.
Fair value losses on credit derivatives were $6 million in
second quarter 2017, and were attributable primarily to narrowing
of the Company's credit spreads. Fair value gains on credit
derivatives in second quarter 2016 were $63 million and were
generated primarily by terminations of several transactions. 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.
Net earned premiums were $162 million in second quarter 2017,
compared with $214 million in second quarter 2016. The decrease is
due primarily to lower accelerations from refundings and
terminations.
Consolidated Statements of Operations
(unaudited)
(in millions)
Quarter
Ended June 30, 2017 2016
Revenues: Net earned premiums $ 162 $ 214 Net investment
income 101 98 Net realized investment gains (losses) 15 10 Net
change in fair value of credit derivatives: Realized gains (losses)
and other settlements 5 24 Net unrealized gains (losses) (11 ) 39
Net change in fair value of credit derivatives (6 ) 63 Fair
value gains (losses) on CCS 2 (11 ) Fair value gains (losses) on FG
VIEs 12 4 Other income (loss) 22 18
Total
revenues 308 396 Expenses: Loss and LAE 72
102 Amortization of deferred acquisition costs 4 5 Interest expense
25 25 Other operating expenses 57 63
Total
expenses 158 195 Income (loss)
before income taxes 150 201 Provision (benefit)
for income taxes (3 ) 55
Net income (loss) $
153 $ 146
Economic Loss Development
The economic development in second quarter 2017 was a loss of
$47 million. The development was primarily related to Puerto Rico
exposures and a decrease in discount rates, partially offset by a
$29 million benefit in United States (U.S.) residential
mortgage-backed securities that was mainly attributable to lower
redefault assumptions on modified loans. The economic loss
development attributable to the decrease in discount rates was a
loss of $23 million for second quarter 2017.
Roll Forward of Net Expected Loss to be Paid (1)
(in millions)
Net Expected
Loss to be Paid
(Recovered) as of
March 31, 2017
Economic Loss
Development/
(Benefit)
Losses (Paid)/
Recovered
Net Expected
Loss to be Paid
(Recovered) as of
June 30, 2017
Public finance $ 1,011 $ 79 $ (4 ) $ 1,086 U.S. residential
mortgage-backed securities 197 (29 ) 14 182 Other structured
finance 36 (3 ) (4 ) 29
Total $ 1,244
$ 47 $ 6 $
1,297
________________________________________________
(1) Economic loss development represents the change in net
expected loss to be paid attributable to the effects of changes in
assumptions based on observed market trends, changes in discount
rates, accretion of discount and the economic effects of loss
mitigation efforts. Economic loss development is the principal
measure that the Company uses to evaluate the loss experience in
its insured portfolio. Expected loss to be paid includes all
transactions insured by the Company, whether written in insurance
or credit derivative form, regardless of the accounting model
prescribed under accounting principles generally accepted in the
United States of America (GAAP).
New Business Production
(in millions)
Quarter Ended June 30, 2017 2016
GWP PVP(1)
Gross Par
Written
GWP PVP(1)
Gross Par
Written
Public finance - U.S.
$ 44 $ 46 $ 4,832
$ 33 $ 33 $ 4,366 Public finance - non - U.S.
26 14 181
7 7 406 Structured finance - U.S.
1
0 —
(3 ) 1 3 Structured finance - non-U.S.
8
10 127
(1 ) — —
Total $ 79 $ 70 $ 5,140
$ 36 $ 41 $ 4,775
________________________________________________
(1) Please see “Explanation of Non-GAAP Financial Measures” at
the end of this press release.
GWP include amounts collected upfront on new business written,
the present value of future premiums on new business written
(discounted at risk free rates), as well as the effects of changes
in the estimated lives of transactions in the inforce book of
business. In second quarter 2017, GWP increased to $79 million from
$36 million in second quarter 2016, due to increased new business
production in public finance and international structured
finance.
U.S. public finance PVP increased in second quarter 2017
compared with the comparable prior-year period due to higher par
written in both the primary and secondary market. The Company's
market share, based on par, rose to 62% in second quarter 2017 from
53% in second quarter 2016. Assured Guaranty's secondary market PVP
more than tripled to $13 million in second quarter 2017 compared
with the comparable prior-year period. Assured Guaranty once again
guaranteed the majority of insured par issued while maintaining an
A- average rating on new business written.
Outside the U.S., the Company generated $14 million of public
finance PVP, all in the United Kingdom, in second quarter 2017,
compared with $7 million in second quarter 2016. In second quarter
2017, the Company guaranteed a university housing transaction and
provided a senior liquidity guarantee as part of a recent European
infrastructure refinancing. The Company believes its financial
guaranty product is competitive with other financing options in
certain segments of the infrastructure market. Future business
activity will be influenced by the typically long lead times for
these types of transactions.
In addition, the Company generated $10 million of non-U.S.
structured finance PVP in second quarter 2017 by providing
reinsurance of aircraft residual value policies.
Other Non-GAAP Financial Measures
Operating income was $141 million in second quarter 2017,
compared with operating income of $136 million in second quarter
2016. The increase in operating income was due primarily to lower
loss expense in 2017 and tax benefits recognized in second quarter
2017 due to the release of tax reserves for uncertain tax
positions, offset in part by lower premium accelerations from
refundings and terminations and loss mitigation benefits in second
quarter 2016 that did not recur in second quarter 2017.
The effects of FG VIE consolidation included in operating income
(non-GAAP) were gains of $5 million in second quarter 2017 and
losses of $3 million in second quarter 2016. As discussed in
"Explanation of Non-GAAP Financial Measures," the Company revised
its calculation of non-GAAP measures, in fourth quarter 2016, in
response to the SEC's May 17, 2016 release of updated Compliance
and Disclosure Interpretations of the rules and regulations on the
use of non-GAAP financial measures (the May 2016 C&DIs), to
include FG VIE consolidation in its non-GAAP measures.
Common Share Repurchases
Summary of Share Repurchases
(in millions, except per share
amounts)
Amount
Number of
Shares
Average Price
Per Share
First quarter 2017 $ 216 5.4 $ 39.83 Second quarter 2017 135
3.5 39.05 Third quarter 2017 (through August 2) 30 0.7 43.78 Total
2017 381 9.6 39.84
From 2013 through August 2, 2017, the Company repurchased 78.2
million common shares at an average price of $26.80, representing
40% of the total shares outstanding at the beginning of the
repurchase program in 2013. The remaining authorization is $168
million as of August 2, 2017. These repurchases can be made from
time to time in the open market or in privately negotiated
transactions.
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 June 30, 2017
December 31, 2016 Assets Investment portfolio: Fixed
maturity securities, available-for-sale, at fair value $ 10,505 $
10,233 Short-term investments, at fair value 678 590 Other invested
assets 88 162 Total investment portfolio 11,271 10,985 Cash
200 118 Premiums receivable, net of commissions payable 916 576
Ceded unearned premium reserve 174 206 Deferred acquisition costs
107 106 Reinsurance recoverable on unpaid losses 78 80 Salvage and
subrogation recoverable 403 365 Credit derivative assets 6 13
Deferred tax asset, net 391 497 Current income tax receivable — 12
FG VIE assets, at fair value 757 876 Other assets 352 317
Total assets $ 14,655 $
14,151 Liabilities and shareholders' equity
Liabilities Unearned premium reserve $ 3,748 $ 3,511 Loss
and LAE reserve 1,268 1,127 Reinsurance balances payable, net 54 64
Long-term debt 1,294 1,306 Credit derivative liabilities 367 402
Current income tax payable 96 — FG VIE liabilities with recourse,
at fair value 689 807 FG VIE liabilities without recourse, at fair
value 131 151 Other liabilities 258 279
Total
liabilities 7,905 7,647 Shareholders'
equity Common stock 1 1 Additional paid-in capital 711 1,060
Retained earnings 5,722 5,289 Accumulated other comprehensive
income 315 149 Deferred equity compensation 1 5
Total
shareholders' equity 6,750 6,504 Total
liabilities and shareholders' equity $ 14,655
$ 14,151
Explanation of Non-GAAP Financial Measures
To reflect the key financial measures that management analyzes
in evaluating the Company’s operations and progress towards
long-term goals, the Company discloses both financial measures
determined in accordance with GAAP and 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
Assured Guaranty.
By disclosing non-GAAP financial measures, the Company gives
investors, analysts and financial news reporters access to
information that management and the Board of Directors review
internally. Assured Guaranty believes its presentation of non-GAAP
financial measures, along with the effect on those measures of
consolidating FG VIEs (FG VIE consolidation), 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 certain variable
interest entities (VIEs) that have issued debt obligations insured
by the Company. However, the Company does not own such VIEs and its
exposure is limited to its obligation under its financial guaranty
insurance contract. Therefore, the Company had previously removed
the effect of FG VIE consolidation in its calculation of its
non-GAAP financial measures. However, since fourth quarter 2016,
based on the SEC's May 2016 compliance and disclosure
interpretations, the Company no longer removes the effect of FG VIE
consolidation from its publicly disclosed non-GAAP financial
measures. This change affects the Company's calculation of
operating income (non-GAAP), operating ROE, non-GAAP operating
shareholders’ equity and non-GAAP adjusted book value. Wherever
possible, the Company has separately disclosed the effect of FG VIE
consolidation. The prior-year quarterly non-GAAP financial measures
have been updated to reflect the revised calculation.
Management and the Board of Directors use non-GAAP financial
measures adjusted to remove FG VIE 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 these core financial measures in
its decision making process and in its calculation of certain
components of management compensation.
Many investors, analysts and financial news reporters use
non-GAAP operating shareholders’ equity, adjusted to remove the
effect of FG VIE consolidation, as the principal financial measure
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. Many of the Company’s fixed income investors also
use this measure to evaluate the Company’s capital adequacy.
Many investors, analysts and financial news reporters also use
non-GAAP adjusted book value, adjusted to remove the effect of FG
VIE consolidation, to evaluate AGL’s share price and as the basis
of their decision to recommend, buy or sell the AGL common shares.
Operating income adjusted for the effect of FG VIE 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 core financial measures that the Company uses to help
determine compensation are: (1) operating income, adjusted to
remove the effect of FG VIE consolidation, (2) non-GAAP operating
shareholders' equity, adjusted to remove the effect of FG VIE
consolidation, (3) growth in non-GAAP adjusted book value per
share, adjusted to remove the effect of FG VIE consolidation, and
(4) PVP.
The following paragraphs and tables define each non-GAAP
financial measure disclosed by the Company and describe why it is
useful. A reconciliation of the non-GAAP financial measure and the
most directly comparable GAAP financial measure is presented
below.
Operating Income (non-GAAP)
Management believes that operating income is a useful measure
because it clarifies the understanding of the underwriting results
and financial condition of the Company and presents the results of
operations of the Company excluding the fair value adjustments on
credit derivatives and CCS that are not expected to result in
economic gain or loss, as well as other adjustments described
below. Management adjusts operating income further by removing FG
VIE consolidation to arrive at its core operating income measure.
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
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, 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. 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. 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.
Summary Reconciliation of GAAP Net Income to Operating
Income (non-GAAP) (1)
(in millions)
Quarter Ended June 30, 2017
2016 Net income (loss) $
153 $ 146 Less pre-tax adjustments: Realized
gains (losses) on investments 15 10 Non-credit impairment
unrealized fair value gains (losses) on credit derivatives (20 ) 32
Fair value gains (losses) on CCS 2 (11 ) Foreign exchange gains
(losses) on remeasurement of premiums receivable and loss and LAE
reserves 21 (17 ) Total pre-tax adjustments 18 14 Less tax
effect on pre-tax adjustments (6 ) (4 ) Operating income (non-GAAP)
$ 141 $ 136
Gain (loss) related to FG VIE
consolidation (net of tax provision (benefit) of $4 and $(1))
included in operating income $ 5 $
(3 )
________________________________________________
(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. The
prior-year non-GAAP financial measures have been updated to reflect
the revised calculation as discussed above.
Operating Income Adjustments
and
Effect of FG VIE Consolidation
(in millions)
Quarter Ended Quarter Ended
June 30, 2017 June 30, 2016
Operating
Income
Adjustments
(1)
Effect of FG
VIE
Consolidation
(2)
Operating
Income
Adjustments
(1)
Effect of FG
VIE
Consolidation
(2)
Adjustments to revenues: Net earned premiums $ — $ (4 ) $ —
$ (3 ) Net investment income — (1 ) 7 (2 ) Net realized investment
gains (losses) 15 — 10 — Net change in fair value of credit
derivatives (12 ) — 37 — Fair value gains (losses) on CCS 2 — (11 )
— Fair value gains (losses) on FG VIEs — 12 — 4 Other income (loss)
21 0 (18 ) 0
Total revenue adjustments
26 7 25 (1 )
Adjustments to expenses: Loss expense 8
(2 ) 11 3
Total expense adjustments 8
(2 ) 11 3
Pre-tax adjustments 18 9 14 (4 ) Tax
effect of adjustments 6 4 4 (1 )
After-tax
adjustments $ 12 $ 5 $ 10 $ (3 )
________________________________________________
(1) The "Operating Income Adjustments" column represents the
amounts recorded in the consolidated statements of operations that
the Company removes to arrive at operating income.
(2) The "Effect of FG VIE Consolidation" column represents the
amounts included in the consolidated statements of operations and
operating income (non-GAAP) that the Company removes to arrive at
the core financial measures that management uses in certain of its
compensation calculations and its decision making process.
Non-GAAP Operating Shareholders’ Equity and Non-GAAP Adjusted
Book Value
Management believes that non-GAAP operating shareholders’ equity
is a useful measure because it presents the equity of the Company
excluding the fair value adjustments on investments, credit
derivatives and CCS, that are not expected to result in economic
gain or loss, along with other adjustments described below.
Management adjusts non-GAAP operating shareholders’ equity further
by removing FG VIE consolidation to arrive at its core operating
shareholders' equity and core adjusted book value.
Non-GAAP operating shareholders’ equity is the basis of the
calculation of non-GAAP adjusted book value (see below). Non-GAAP
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
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) (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.
4) Elimination of the tax asset or liability
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 non-GAAP adjusted book value, adjusted for FG
VIE consolidation, to measure the intrinsic value of the Company,
excluding franchise value. Growth in non-GAAP adjusted book value
per share, adjusted for FG VIE 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 non-GAAP 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 net of expected losses.
Non-GAAP adjusted book value is non-GAAP 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 on non-financial guaranty contracts.
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 expected
future net earned premiums, net of expected losses to be expensed,
which are not reflected in GAAP equity.
4) Elimination of the tax asset or liability
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 non-GAAP adjusted
book value will be earned in future periods, but actual earnings
may differ materially from the estimated amounts used in
determining current non-GAAP adjusted book value due to changes in
foreign exchange rates, prepayment speeds, terminations, credit
defaults and other factors.
Reconciliation of GAAP Shareholders' Equity to Non-GAAP
Operating Shareholders' Equity (1) and Non-GAAP Adjusted Book Value
(1)
(in millions, except per share
amounts)
As of June 30, 2017
December 31,
2016
Shareholders' equity $ 6,750 $
6,504 Less pre-tax adjustments: Non-credit impairment
unrealized fair value gains (losses) on credit derivatives (185 )
(189 ) Fair value gains (losses) on CCS 62 62 Unrealized gain
(loss) on investment portfolio excluding foreign exchange effect
504 316 Less taxes (133 ) (71 ) Non-GAAP operating shareholders'
equity 6,502 6,386 Pre-tax adjustments: Less: Deferred acquisition
costs 106 106 Plus: Net present value of estimated net future
revenue 148 136 Plus: Net unearned premium reserve on financial
guaranty contracts in excess of expected loss to be expensed 3,173
2,922 Plus taxes (924 ) (832 ) Non-GAAP adjusted book value $ 8,793
$ 8,506
Gain (loss) related to FG VIE
consolidation included in non-GAAP operating shareholders' equity
(net of tax (provision) benefit of $(1) and $4) $
3 $ (7 ) Gain (loss) related to FG
VIE consolidation included in non-GAAP adjusted book value (net of
tax benefit of $8 and $12) $ (13 )
$ (24 ) Shares outstanding at the end
of the period 119.7 128.0
Per share: Shareholders'
equity $ 56.40 $ 50.82 Non-GAAP
operating shareholders' equity 54.34 49.89 Non-GAAP adjusted book
value 73.48 66.46
________________________________________________
(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.
Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because
it enables an evaluation of the value of future estimated revenue.
There is no corresponding GAAP financial measure. This amount
represents the present value of estimated future revenue from the
Company’s non-financial guaranty contracts, net of reinsurance,
ceding commissions and premium taxes, for contracts without
expected economic losses, and is discounted at 6%. Estimated net
future 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.
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 management believes GAAP gross written premiums and the
net credit derivative premiums received and receivable portion of
net realized gains and other settlements on credit derivatives
(Credit Derivative Realized Gains (Losses)) 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,
discounted, in each case, at 6%. 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 future net earned or
written premiums and Credit Derivative Realized Gains (Losses) 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 GWP to PVP (1)
(in millions)
Quarter Ended June 30, 2017 Public
Finance Structured Finance U.S.
Non - U.S. U.S. Non - U.S.
Total GWP $ 44 $ 26
$ 1 $ 8 $ 79
Less: Installment GWP and other GAAP
adjustments(2)
(2 ) 26 1 0 25 Upfront GWP 46 — — 8 54
Plus: Installment premium PVP
0 14 0 2 16 PVP $ 46 $ 14
$ 0 $ 10 $ 70
Quarter Ended
June 30, 2016 Public Finance Structured
Finance U.S. Non - U.S. U.S.
Non - U.S. Total GWP $ 33
$ 7 $ (3 ) $ (1
) $ 36
Less: Installment GWP and other GAAP
adjustments(2)
0 7 (3 ) (1 ) 3 Upfront GWP 33 — 0 — 33 Plus:
Installment premium PVP — 7 1 — 8 PVP $
33 $ 7 $ 1 $ — $ 41
________________________________________________
(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 discounted at the prescribed GAAP discount rates, GWP
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 8:00
a.m. Eastern Time (9:00 a.m. Atlantic Time) on Thursday, August 3,
2017. 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 November 2, 2017. To listen to the replay, dial
1-877-344-7529 (in the U.S.) or 1-412-317-0088 (International),
passcode 10110568. The replay will be available one hour after the
conference call ends.
Please refer to Assured Guaranty's June 30, 2017 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 portfolio,
investment portfolio and other items. The Company is also posting
on the same page of its website:
- “Public Finance Transactions in 2Q
2017,” which lists the U.S. public finance new issues insured by
the Company in second quarter 2017, and
- “Structured Finance Transactions at
June 30, 2017,” which lists the Company's structured finance
exposure as of that date.
In addition, the Company is posting at assuredguaranty.com/presentations the “June 30,
2017 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
non-GAAP 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 reduction in the amount of available insurance
opportunities and/or in the demand for Assured Guaranty's
insurance; 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; 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; 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; the impact of changes in
the world’s economy and credit and currency markets and in
applicable laws or regulations relating to the decision of the
United Kingdom to exit the European Union; the possibility that
acquisitions or alternative investments made by Assured Guaranty do
not result in the benefits anticipated or subject Assured Guaranty
to unanticipated consequences; 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; 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 risk factors identified in AGL's filings with
the U.S. Securities and Exchange Commission; other risks and
uncertainties that have not been identified at this time; and
management’s response to these factors. Readers are cautioned not
to place undue reliance on these forward-looking statements. These
forward-looking statements are made as of August 2, 2017, and
Assured Guaranty undertakes no obligation to update publicly or
review any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as required
by law.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170802006461/en/
Assured Guaranty Ltd.Robert Tucker, 212-339-0861Senior Managing
Director, Investor Relations and Corporate
Communicationsrtucker@agltd.comorAshweeta Durani,
212-408-6042Vice President, Corporate Communicationsadurani@agltd.com
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