Guaranty

Assured Guaranty Ltd. June 30, 2018 Financial Supplement



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June 30, 2018
Financial Supplement

Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This financial supplement should be read in conjunction with documents filed by Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for the year ended December 31, 2017 and its Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2018 and June 30, 2018.

Some amounts in this financial supplement may not add due to rounding.

Cautionary Statement Regarding Forward Looking Statements:

Any forward looking statements made in this supplement reflect the current views of Assured Guaranty 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. Assured Guaranty's forward looking statements could be affected by many events. These events include (1) reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty's insurance; (2) 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; (3) developments in the world’s financial and capital markets that adversely affect obligors’ payment rates or Assured Guaranty’s loss experience; (4) 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; (5) the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates; (6) increased competition, including from new entrants into the financial guaranty industry; (7) 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; (8) the inability of Assured Guaranty to access external sources of capital on acceptable terms; (9) changes in the world’s credit markets, segments thereof, interest rates or general economic conditions; (10) the impact of market volatility on the mark-to-market of Assured Guaranty’s contracts written in credit default swap form; (11) changes in applicable accounting policies or practices; (12) changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions; (13) 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; (14) 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;(15) 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; (16) difficulties with the execution of Assured Guaranty’s business strategy; (17) loss of key personnel; (18) the effects of mergers, acquisitions and divestitures; (19) natural or man-made catastrophes; (20) other risk factors identified in AGL's filings with the SEC; (21) other risks and uncertainties that have not been identified at this time and; (22) management’s response to these factors. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the dates on which they are made. 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.




Selected Financial Highlights (1 of 2)
(dollars in millions, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018

2017
Net income (loss)
$
75


$
153

 
$
272

 
$
470

Non-GAAP operating income(1)
74


141

 
229

 
414

Gain (loss) related to the effect of consolidating financial guaranty variable interest entities (FG VIE consolidation) (net of tax provision (benefit) of $(1), $4, $0 and $6) included in non-GAAP operating income
(4
)

5

 
1

 
10

 



 

 
 
Net income (loss) per diluted share
$
0.67


$
1.24

 
$
2.37


$
3.76

Non-GAAP operating income per diluted share (1)
0.66


1.16

 
1.99

 
3.32

Gain (loss) related to FG VIE consolidation included in non-GAAP operating income per diluted share
$
(0.03
)

$
0.05

 
0.01

 
0.08

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic shares outstanding
111.7

 
121.3

 
113.4

 
123.3

Diluted shares outstanding (2)
112.9


122.7

 
114.8

 
124.9

 
 
 
 
 
 
 
 
Effective tax rate on net income
13.2
 %
 
(1.9
)%
 
10.4
%
 
10.0
%
Effective tax rate on non-GAAP operating income(3)
6.6
 %
 
(6.6
)%
 
8.7
%
 
5.7
%
Effect of FG VIE consolidation included in effective tax rate on non-GAAP operating income
(0.8
)%
 
3.0
 %
 
0.1
%
 
1.1
%
 
 
 
 
 
 
 
 
Return on equity (ROE) calculations (4):
 
 
 
 
 
 
 
GAAP ROE
4.5
 %
 
9.1
 %
 
8.1
%
 
14.2
%
Non-GAAP operating ROE (1)
4.6
 %
 
8.7
 %
 
7.1
%
 
12.9
%
Effect of FG VIE consolidation on non-GAAP operating ROE
(0.2
)%
 
0.3
 %
 
0.1
%
 
0.4
%
 
 
 
 
 
 
 
 
New business:
 
 
 
 
 
 
 
Gross written premiums (GWP)
$
393

 
$
79

 
$
466

 
$
190

Present value of new business production (PVP) (1)   
454

 
70

 
515

 
169

Gross par written
14,571

 
5,140

 
16,773

 
9,831

 
 
 
 
 
 
 
 
 
 
 
 
 
As of
 
 
 
 
 
June 30, 2018
 
December 31, 2017
Shareholders' equity
 
 
 
 
$
6,634

 
$
6,839

Non-GAAP operating shareholders' equity (1)
 
 
 
 
6,423

 
6,521

Non-GAAP adjusted book value (1)
 
 
 
 
9,079

 
9,020

Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity
 
 
 
 
7

 
5

Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value
 
 
 
 
(12
)
 
(14
)
 
 
 
 
 
 
 
 
Shares outstanding at the end of period
 
 
 
 
109.6

 
116.0

 
 
 
 
 
 
 
 
Shareholders' equity per share
 
 
 
 
$
60.52

 
$
58.95

Non-GAAP operating shareholders' equity per share (1)
 
 
 
 
58.60

 
56.20

Non-GAAP adjusted book value per share (1)
 
 
 
 
82.83

 
77.74

Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity
 
 
 
 
0.07

 
0.03

Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value
 
 
 
 
(0.11
)
 
(0.12
)
 
 
 
 
 
 
 
 
Net debt service outstanding
 
 
 
 
$
392,997

 
$
401,118

Net par outstanding
 
 
 
 
257,804

 
264,952

Claims-paying resources (5)
 
 
 
 
12,163

 
11,752


1)
Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.
2)
Non-GAAP diluted shares outstanding were the same as diluted shares calculated in accordance with accounting principles generally accepted in the United States of America (GAAP) since both net income and non-GAAP operating income were positive for all periods.
3)
Represents the ratio of non-GAAP operating provision for income taxes to non-GAAP operating income before income taxes.
4)
Quarterly ROE calculations represent annualized returns. See page 7 for additional information on calculation.
5)
See page 9 for additional detail on claims-paying resources.

1



Selected Financial Highlights (2 of 2)
(dollars in millions, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018

2017
Effect of refundings and terminations on GAAP measures:
 
 
 
 
 
 
 
Net earned premiums, pre-tax
$
39

 
$
59

 
$
91

 
$
117

Net change in fair value of credit derivatives, pre-tax
1

 
1

 
6

 
16

 
 
 
 
 
 
 
 
Net income effect
32

 
42

 
77

 
93

Net income per diluted share
0.28

 
0.34

 
0.67

 
0.75

 
 
 
 
 
 
 
 
Effect of refundings and terminations on non-GAAP measures:
 
 
 
 
 
 
 
Operating net earned premiums and credit derivative revenues(1), pre-tax
40

 
60

 
95

 
126

Non-GAAP operating income(1) effect
31

 
42

 
74

 
88

Non-GAAP operating income per diluted share (1)
0.27

 
0.34

 
0.65

 
0.70


1)
Condensed consolidated statement of operations items mentioned in this Financial Supplement that are described as operating (i.e. operating net earned premiums) are non-GAAP measures and represent components of non-GAAP operating income. Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.

2



Condensed Consolidated Balance Sheets (unaudited)
(dollars in millions)

 
 
As of
 
 
June 30,
 
December 31,
 
 
2018
 
2017
Assets:
 
 
 
 
Investment portfolio:
 
 
 
 
Fixed maturity securities, available-for-sale, at fair value
 
$
10,225

 
$
10,674

Short-term investments, at fair value
 
911

 
627

Other invested assets
 
102

 
94

Total investment portfolio
 
11,238

 
11,395

 
 
 
 
 
Cash
 
185

 
144

Premiums receivable, net of commissions payable
 
932

 
915

Ceded unearned premium reserve
 
66

 
119

Deferred acquisition costs
 
102

 
101

Salvage and subrogation recoverable
 
425

 
572

Financial guaranty variable interest entities (FG VIE) assets, at fair value
 
627

 
700

Other assets
 
557

 
487

Total assets
 
$
14,132

 
$
14,433

 
 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
Liabilities:
 
 
 
 
Unearned premium reserve
 
$
3,635

 
$
3,475

Loss and loss adjustment expense (LAE) reserve
 
1,327

 
1,444

Long-term debt
 
1,264

 
1,292

Credit derivative liabilities
 
258

 
271

FG VIE liabilities with recourse, at fair value
 
571

 
627

FG VIE liabilities without recourse, at fair value
 
108

 
130

Other liabilities
 
335

 
355

Total liabilities
 
7,498

 
7,594

 
 
 
 
 
Shareholders' equity:
 
 
 
 
Common stock
 
1

 
1

Additional paid-in capital
 
321

 
573

Retained earnings
 
6,159

 
5,892

Accumulated other comprehensive income
 
152

 
372

Deferred equity compensation
 
1

 
1

Total shareholders' equity
 
6,634

 
6,839

Total liabilities and shareholders' equity
 
$
14,132

 
$
14,433





3



Condensed Consolidated Statements of Operations (unaudited)
(dollars in millions, except per share amounts)

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Net earned premiums
$
136


$
162

 
$
281


$
326

 
Net investment income
99


101

 
200


223

 
Net realized investment gains (losses)
(2
)

15

 
(7
)

47

 
Net change in fair value of credit derivatives:



 



 
 
 Realized gains (losses) and other settlements
1


5

 
3


20

 
 
 Net unrealized gains (losses)
47


(11
)
 
79


28

 
 
 
Net change in fair value of credit derivatives
48

 
(6
)
 
82

 
48

 
Fair value gains (losses) on FG VIEs
2


12

 
6


22

 
Bargain purchase gain and settlement of pre-existing relationships



 


58

 
Commutation gains (losses)
(18
)


 
(17
)
 
73

 
Other income (loss)
(44
)

24

 
(31
)

38

 
 
Total revenues
221

 
308

 
514

 
835

Expenses:
 
 
 
 
 
 
 
 
Loss and LAE
44


72

 
26


131

 
Amortization of deferred acquisition costs
4


4

 
9


8

 
Interest expense
24


25

 
48


49

 
Other operating expenses
62


57

 
127


125

 
 
Total expenses
134

 
158

 
210

 
313

Income (loss) before income taxes
87

 
150

 
304

 
522

 
Provision (benefit) for income taxes
12


(3
)
 
32


52

Net income (loss)
$
75


$
153

 
$
272


$
470

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
$
0.67

 
$
1.26

 
$
2.39


$
3.81

 
Diluted
$
0.67


$
1.24

 
$
2.37


$
3.76



4



Non-GAAP Operating Income Adjustments and Effect of FG VIE Consolidation
(dollars in millions)

Non-GAAP Operating Income Adjustments and Effect of FG VIE Consolidation for the Three Months Ended June 30, 2018 and June 30, 2017
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Non-GAAP Operating Income Adjustments (1)
 
Effect of FG VIE Consolidation (2)
 
Non-GAAP Operating Income Adjustments (1)
 
Effect of FG VIE Consolidation (2)
Adjustments to revenues:
 
 
 
 
 
 
 
 
Net earned premiums
 
$

 
$
(3
)
 
$

 
$
(4
)
Net investment income
 

 
(1
)
 

 
(1
)
Net realized investment gains (losses)
 
(2
)
 

 
15

 

Net change in fair value of credit derivatives
 
43

 

 
(12
)
 

Fair value gains (losses) on FG VIEs
 

 
2

 

 
12

Other income (loss)
 
(35
)
 
0

 
23

 
0

Total revenue adjustments
 
6

 
(2
)
 
26

 
7

Adjustments to expenses:
 
 
 
 
 
 
 
 
Loss expense
 
(1
)
 
3

 
8

 
(2
)
Total expense adjustments
 
(1
)
 
3

 
8

 
(2
)
Pre-tax adjustments
 
7

 
(5
)
 
18

 
9

Tax effect of adjustments
 
6

 
(1
)
 
6

 
4

After-tax adjustments
 
$
1

 
$
(4
)
 
$
12

 
$
5


Non-GAAP Operating Income Adjustments and Effect of FG VIE Consolidation for the Six Months Ended June 30, 2018 and June 30, 2017
 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Non-GAAP Operating Income Adjustments (1)
 
Effect of FG VIE Consolidation (2)
 
Non-GAAP Operating Income Adjustments (1)
 
Effect of FG VIE Consolidation (2)
Adjustments to revenues:
 
 
 
 
 
 
 
 
Net earned premiums
 
$

 
$
(6
)
 
$

 
$
(8
)
Net investment income
 

 
(2
)
 

 
(2
)
Net realized investment gains (losses)
 
(7
)
 

 
47

 

Net change in fair value of credit derivatives
 
72

 

 
31

 

Fair value gains (losses) on FG VIEs
 

 
6

 

 
22

Other income (loss)
 
(14
)
 
0

 
31

 
0

Total revenue adjustments
 
51

 
(2
)
 
109

 
12

Adjustments to expenses:
 
 
 
 
 
 
 
 
Loss expense
 
(2
)
 
(3
)
 
26

 
(4
)
Total expense adjustments
 
(2
)
 
(3
)
 
26

 
(4
)
Pre-tax adjustments
 
53

 
1

 
83

 
16

Tax effect of adjustments
 
10

 

 
27

 
6

After-tax adjustments
 
$
43

 
$
1

 
$
56

 
$
10


1)
The "Non-GAAP Operating Income Adjustments" column represents the amounts recorded in the condensed consolidated statements of operations that the Company removes to arrive at non-GAAP operating income. Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.

2)
The "Effect of FG VIE Consolidation" column represents the amounts included in the condensed consolidated statements of operations and non-GAAP operating income 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. Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.


5



Selected Financial Highlights
GAAP to Non-GAAP Reconciliations (1 of 3)
(dollars in millions, except per share amounts)

Non-GAAP Operating Income Reconciliation
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
75

 
$
153

 
$
272


$
470

Less pre-tax adjustments:
 

 

 



Realized gains (losses) on investments
 
(2
)

15

 
(7
)

47

Non-credit impairment unrealized fair value gains (losses) on credit derivatives
 
44


(20
)
 
74


5

Fair value gains (losses) on committed capital securities (CCS) (1)
 
(1
)

2

 
(2
)

0

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (1)
 
(34
)

21

 
(12
)

31

Total pre-tax adjustments
 
7

 
18

 
53

 
83

Less tax effect on pre-tax adjustments
 
(6
)

(6
)

(10
)

(27
)
Non-GAAP operating income
 
$
74


$
141

 
$
229


$
414

 
 
 
 
 
 
 
 
 
Gain (loss) related to FG VIE consolidation (net of tax provision (benefit) of $(1), $4, $0 and $6) included in non-GAAP operating income
 
$
(4
)

$
5


$
1


$
10

 
 
 
 
 
 
 
 
 
Per diluted share:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.67

 
$
1.24

 
$
2.37

 
$
3.76

Less pre-tax adjustments:
 
 
 
 
 
 
 
 
Realized gains (losses) on investments
 
(0.01
)
 
0.13

 
(0.06
)
 
0.38

Non-credit impairment unrealized fair value gains (losses) on credit derivatives
 
0.39

 
(0.17
)
 
0.65

 
0.03

Fair value gains (losses) on CCS (1)
 
(0.01
)
 
0.01

 
(0.02
)
 
0.00

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (1)
 
(0.30
)
 
0.17

 
(0.11
)
 
0.25

Total pre-tax adjustments
 
0.07

 
0.14

 
0.46

 
0.66

Less tax effect on pre-tax adjustments
 
(0.06
)

(0.06
)
 
(0.08
)
 
(0.22
)
Non-GAAP operating income
 
$
0.66

 
$
1.16

 
$
1.99


$
3.32

 
 
 
 
 
 
 
 
 
Gain (loss) related to FG VIE consolidation included in non-GAAP operating income per diluted share
 
$
(0.03
)

$
0.05

 
$
0.01


$
0.08


1) Included in other income (loss) in the condensed consolidated statements of operations.

Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.

6



Selected Financial Highlights
GAAP to Non-GAAP Reconciliations (2 of 3)
(dollars in millions)

ROE Reconciliation and Calculation
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
March 31,
 
December 31,
 
June 30,
 
March 31,
 
December 31,
 
2018
 
2018
 
2017
 
2017
 
2017
 
2016
Shareholders' equity
$
6,634

 
$
6,784

 
$
6,839

 
$
6,750

 
$
6,637

 
$
6,504

Non-GAAP operating shareholders' equity
6,423

 
6,592

 
6,521

 
6,502

 
6,460

 
6,386

Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity
7

 
$
8

 
5

 
3

 
$
(3
)
 
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
 
June 30,
 
June 30,
 
 
 
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
 
 
 
$
75

 
$
153

 
$
272

 
$
470

Non-GAAP operating income
 
 
 
 
74

 
141

 
229

 
414

Gain (loss) related to FG VIE consolidation included in non-GAAP operating income
 
 
 
 
(4
)
 
5

 
1

 
10

 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
 
 
 
 
$
6,709

 
$
6,694

 
$
6,737

 
$
6,627

Average non-GAAP operating shareholders' equity
 
 
 
 
6,508

 
6,481

 
6,472

 
6,444

Gain (loss) related to FG VIE consolidation included in average non-GAAP operating shareholders' equity
 
 
 
 
8

 
0

 
6

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
GAAP ROE (1)
 
 
 
 
4.5
 %
 
9.1
%
 
8.1
%
 
14.2
%
Non-GAAP operating ROE (1)
 
 
 
 
4.6
 %
 
8.7
%
 
7.1
%
 
12.9
%
Effect of FG VIE consolidation included in non-GAAP operating ROE
 
 
 
 
(0.2
)%
 
0.3
%
 
0.1
%
 
0.4
%

1)
Quarterly ROE calculations represent annualized returns.

Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.


7



Selected Financial Highlights
GAAP to Non-GAAP Reconciliations (3 of 3)
(dollars in millions)


 
 
As of
 
 
June 30,
 
March 31,
 
December 31,
 
June 30,
 
March 31,
 
December 31,
 
 
2018
 
2018
 
2017
 
2017
 
2017
 
2016
Reconciliation of shareholders' equity to non-GAAP adjusted book value:
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
 
$
6,634

 
$
6,784

 
$
6,839

 
$
6,750

 
$
6,637

 
$
6,504

Less pre-tax reconciling items:
 

 
 
 

 
 
 
 
 
 
Non-credit impairment unrealized fair value gains (losses) on credit derivatives
 
(72
)
 
(116
)
 
(146
)
 
(185
)
 
(164
)
 
(189
)
Fair value gains (losses) on CCS
 
58

 
58

 
60

 
62

 
60

 
62

Unrealized gain (loss) on investment portfolio excluding foreign exchange effect
 
290

 
307

 
487

 
504

 
380

 
316

Less taxes
 
(65
)
 
(57
)
 
(83
)
 
(133
)
 
(99
)
 
(71
)
Non-GAAP operating shareholders' equity
 
6,423


6,592

 
6,521

 
6,502


6,460

 
6,386

Pre-tax reconciling items:
 
 
 
 
 
 
 
 
 
 
 
 
Less: Deferred acquisition costs
 
102

 
100

 
101

 
106

 
106

 
106

Plus: Net present value of estimated net future revenue
 
217

 
140

 
146

 
148

 
153

 
136

Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed
 
3,083

 
2,899

 
2,966

 
3,173

 
3,236

 
2,922

Plus taxes
 
(542
)
 
(497
)
 
(512
)
 
(924
)
 
(945
)
 
(832
)
Non-GAAP adjusted book value
 
$
9,079


$
9,034

 
$
9,020

 
$
8,793


$
8,798

 
$
8,506

 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity (net of tax (provision) benefit of $(2), $(2), $(2), $(1), $2 and $4)
 
$
7

 
$
8

 
$
5

 
$
3

 
$
(3
)
 
$
(7
)
 
 


 
 
 


 
 
 
 
 
 
Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value (net of tax benefit of $3, $3, $3, $8, $12 and $12)
 
$
(12
)
 
$
(12
)
 
$
(14
)
 
$
(13
)
 
$
(20
)
 
$
(24
)

Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.



8



Assured Guaranty Ltd.
Claims-Paying Resources
(dollars in millions)
 
 
As of June 30, 2018
 
 
Assured Guaranty Municipal Corp.
 
Assured Guaranty Corp.
 
Municipal Assurance Corp.
 
Assured Guaranty Re Ltd. (8)
 
Eliminations(3)
 
Consolidated
Claims-paying resources
 
 
 
 
 
 
 
 
 
 
 
 
Policyholders' surplus
 
$
2,221

 
$
1,850

 
$
270

 
$
994

 
$
(326
)
 
$
5,009

Contingency reserve(1)
 
1,166

 
653

 
235

 

 
(235
)
 
1,819

Qualified statutory capital
 
3,387

 
2,503

 
505

 
994

 
(561
)
 
6,828

Unearned premium reserve and net deferred ceding commission income(1)
 
1,898

 
522

 
221

 
710

 
(326
)
 
3,025

Loss and LAE reserves (1)
 
638

 
315

 
0

 
307

 
0

 
1,260

Total policyholders' surplus and reserves
 
5,923

 
3,340

 
726

 
2,011

 
(887
)
 
11,113

Present value of installment premium
 
177

 
150

 
(1
)
 
143

 
1

 
470

CCS
 
200

 
200

 

 

 

 
400

Excess of loss reinsurance facility (2)
 
180

 
180

 
180

 

 
(360
)
 
180

Total claims-paying resources (including proportionate MAC ownership for AGM and AGC)
 
6,480

 
3,870

 
905

 
2,154

 
(1,246
)
 
12,163

Adjustment for MAC (4)
 
440

 
285

 

 

 
(725
)
 

Total claims-paying resources (excluding proportionate MAC ownership for AGM and AGC)
 
$
6,040

 
$
3,585

 
$
905

 
$
2,154

 
$
(521
)
 
$
12,163

 
 
 
 
 
 
 
 
 
 
 
 
 
Statutory net par outstanding (5)                     
 
$
116,393

 
$
28,852

 
$
26,527

 
$
66,822

 
$
(342
)
 
$
238,252

Equity method adjustment (4)
 
16,102

 
10,425

 

 

 
(26,527
)
 

Adjusted statutory net par outstanding (1)
 
$
132,495

 
$
39,277

 
$
26,527

 
$
66,822

 
$
(26,869
)
 
$
238,252

 
 
 
 
 
 
 
 
 
 
 
 
 
Net debt service outstanding (5) 
 
$
184,979

 
$
43,911

 
$
39,112

 
$
104,703

 
$
(727
)
 
$
371,978

Equity method adjustment (4)
 
23,741

 
15,371

 

 

 
(39,112
)
 

Adjusted net debt service outstanding (1)
 
$
208,720

 
$
59,282

 
$
39,112

 
$
104,703

 
$
(39,839
)
 
$
371,978

Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted net par outstanding to qualified statutory capital
 
39:1
 
16:1
 
53:1
 
67:1
 

 
35:1
Capital ratio (6)
 
62:1
 
24:1
 
77:1
 
105:1
 

 
54:1
Financial resources ratio (7)
 
32:1
 
15:1
 
43:1
 
49:1
 

 
31:1

1)
The numbers shown for Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp. (AGC) have been adjusted to include, as applicable, (i) their 100% share of their respective European insurance subsidiaries and (ii) their indirect share of Municipal Assurance Corp. (MAC). AGM and AGC own 60.7% and 39.3%, respectively, of the outstanding stock of Municipal Assurance Holdings Inc., which owns 100% of the outstanding common stock of MAC. Amounts include financial guaranty insurance and credit derivatives. Beginning in the second quarter of 2018, the Company incorporates deferred ceding commission income in claims-paying resources.
2)
Represents the $180 million portion placed with an unaffiliated reinsurer of a $400 million aggregate excess-of-loss reinsurance facility for the benefit of AGC, AGM and MAC, which became effective January 1, 2018. The facility terminates on January 1, 2020, unless AGC, AGM and MAC choose to extend it.
3)
Eliminations are primarily for (i) intercompany surplus notes between AGM and AGC, and (ii) MAC amounts, whose proportionate share are included in AGM and AGC based on ownership percentages, and (iii) eliminations related to the sale of European subsidiaries (Assured Guaranty (UK) plc, Assured Guaranty (London) plc and CIFG Europe S.A.) from AGC to AGM. Net par and net debt service outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary, and net par related to intercompany cessions from AGM and AGC to MAC.
4)
Represents adjustments for AGM's and AGC's interest and indirect ownership of MAC.
5)
Net par outstanding and net debt service outstanding are presented on a statutory basis.
6)
The capital ratio is calculated by dividing adjusted net debt service outstanding by qualified statutory capital.
7)
The financial resources ratio is calculated by dividing adjusted net debt service outstanding by total claims-paying resources (including MAC adjustment for AGM and AGC).
8)
Assured Guaranty Re Ltd. (AG Re) numbers represent the Company's estimate of United States (U.S.) statutory accounting practices prescribed or permitted by insurance regulatory authorities, except for contingency reserves.

Please refer to the Glossary for an explanation of changes in the presentation of net debt service and net par outstanding.


9



Assured Guaranty Ltd.
New Business Production
(dollars in millions)

Reconciliation of GWP to PVP for the Three Months Ended June 30, 2018 and June 30, 2017

 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Public Finance
 
Structured Finance
 
 
 
Public Finance
 
Structured Finance
 
 
 
 
U.S.
 
Non - U.S.
 
U.S. 
 
Non - U.S.
 
Total
 
U.S.
 
Non - U.S.
 
U.S.
 
Non - U.S.
 
Total
Total GWP
 
$
170

 
$
55

 
$
158

 
$
10

 
$
393

 
$
44

 
$
26

 
$
1

 
$
8

 
$
79

Less: Installment GWP and other GAAP adjustments(1)
 
20

 
32

 
5

 
1

 
58

 
(2
)
 
26

 
1

 
0

 
25

Upfront GWP
 
150

 
23

 
153

 
9

 
335

 
46

 

 

 
8

 
54

Plus: Installment premium PVP(2)
 
84

 
30

 
5

 
0

 
119

 
0

 
14

 
0

 
2

 
16

Total PVP
 
$
234

 
$
53

 
$
158

 
$
9

 
$
454

 
$
46

 
$
14

 
$
0

 
$
10

 
$
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross par written
 
$
10,675

 
$
3,345

 
$
393

 
$
158

 
$
14,571

 
$
4,832

 
$
181

 
$

 
$
127

 
$
5,140


Reconciliation of GWP to PVP for the Six Months Ended June 30, 2018 and June 30, 2017

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Public Finance
 
Structured Finance
 
 
 
Public Finance
 
Structured Finance
 
 
 
 
U.S.
 
Non - U.S.
 
U.S. 
 
Non - U.S.
 
Total
 
U.S.
 
Non - U.S.
 
U.S.
 
Non - U.S.
 
Total
Total GWP
 
$
203


$
94


$
159


$
10

 
$
466

 
$
95

 
$
84

 
$
2

 
$
9

 
$
190

Less: Installment GWP and other GAAP adjustments(1)
 
18


55


6


1

 
80

 
(3
)
 
82

 
2

 
(1
)
 
80

Upfront GWP
 
185

 
39

 
153

 
9

 
386

 
98

 
2

 

 
10

 
110

Plus: Installment premium PVP(2)
 
84


40


5


0

 
129

 
0

 
52

 
5

 
2

 
59

Total PVP
 
$
269

 
$
79

 
$
158

 
$
9

 
$
515

 
$
98

 
$
54

 
$
5

 
$
12

 
$
169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross par written
 
$
12,679

 
$
3,532

 
$
404

 
$
158

 
$
16,773

 
$
8,262

 
$
1,171

 
$
243

 
$
155

 
$
9,831


1)
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.

2)
Includes PVP of credit derivatives assumed in the Syncora Guarantee Inc. (SGI) transaction in the second quarter of 2018.


Please refer to the explanation of Non-GAAP Financial Measures set forth at the end of this Financial Supplement.

10



Assured Guaranty Ltd.
Gross Par Written
(dollars in millions)


Gross Par Written by Asset Type

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2018
 
 
Gross Par Written
 
Avg. Internal Rating
 
Gross Par Written
 
Avg. Internal Rating
Sector:
 
 
 
 
 
 
 
 
U.S. public finance
 
 
 
 
 
 
 
 
General obligation
 
$
2,793

 
A-
 
$
3,493

 
A-
Tax backed
 
1,447

 
BBB+
 
2,398

 
A-
Municipal utilities
 
1,800

 
A
 
1,875

 
A
Infrastructure finance
 
1,077

 
A+
 
1,116

 
A+
Investor owned utilities
 
862

 
A-
 
862

 
A-
Transportation
 
684

 
A
 
788

 
A
Higher education
 
595

 
A
 
653

 
A
Healthcare
 
174

 
BBB-
 
179

 
BBB-
Housing
 
113

 
BBB+
 
185

 
BBB
Other
 
1,130

 
A
 
1,130

 
A
Total U.S. public finance
 
10,675

 
A
 
12,679

 
A
Non-U.S. public finance:
 
 
 
 
 
 
 
 
Regulated utilities
 
2,590

 
BBB+
 
2,590

 
BBB+
Infrastructure finance
 
622

 
BBB-
 
809

 
BBB-
Other
 
133

 
A+
 
133

 
A+
Total non-U.S. public finance
 
3,345

 
BBB+
 
3,532

 
BBB
Total public finance
 
$
14,020

 
A-
 
$
16,211

 
A-
 
 
 
 
 
 
 
 
 
U.S. structured finance:
 
 
 
 
 
 
 
 
Residential mortgage-backed securities (RMBS)
 
$
327

 
B-
 
$
327

 
B-
Structured credit
 
30

 
BBB
 
41

 
BBB
Pooled corporate obligations
 
22

 
AAA
 
22

 
AAA
Other
 
14

 
A-
 
14

 
A-
Total U.S. structured finance
 
393

 
B+
 
404

 
B+
Non-U.S. structured finance
 
 
 
 
 
 
 
 
Commercial receivable
 
139

 
BBB+
 
139

 
BBB+
RMBS
 
19

 
BBB
 
19

 
BBB
Total Non-U.S. structured finance
 
158

 
BBB+
 
158

 
BBB+
Total structured finance
 
$
551

 
BB
 
$
562

 
BB
 
 
 
 
 
 
 
 
 
Total gross par written
 
$
14,571

 
A-
 
$
16,773

 
A-


Please refer to the Glossary for a description of internal ratings and sectors.




11



Assured Guaranty Ltd.
New Business Production by Quarter
(dollars in millions)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months
 
 
1Q-17
 
2Q-17
 
3Q-17
 
4Q-17
 
1Q-18
 
2Q-18
 
2017
 
2018
PVP:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Public finance - U.S.
 
$
52

 
$
46

 
$
39

 
$
59

 
$
35

 
$
234

 
$
98

 
$
269

Public finance - non-U.S.
 
40

 
14

 
4

 
8

 
26

 
53

 
54

 
79

Structured finance - U.S.
 
5

 
0

 
0

 
7

 
0

 
158

 
5

 
158

Structured finance - non-U.S.
 
2

 
10

 

 
3

 

 
9

 
12

 
9

Total PVP
 
$
99

 
$
70

 
$
43

 
$
77

 
$
61

 
$
454

 
$
169

 
$
515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of GWP to PVP:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GWP
 
$
111

 
$
79