- Net income was $208 million, or
$1.72 per share, for third quarter 2017, compared with $479
million, or $3.60 per share, for third quarter 2016.
- Operating income1
(non-GAAP) was $156 million, or $1.29 per share, for third
quarter 2017, compared with $497 million, or $3.74 per share, for
third 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 $58.32, $55.87 and $74.78,
respectively.
- On November 1, 2017, the Board of
Directors approved an incremental $300 million share repurchase
authorization. Share repurchases totaled $80 million, or 1.8
million shares, in third 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
September 30, 2017 (third 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
September 30, 2017 2016 Net
income $ 208 $ 479 Operating income
(non-GAAP)(1) 156 497 Gain (loss) related to the effect of
consolidating financial guaranty variable interest entities (FG VIE
consolidation) included in operating income (1 ) (11 )
Net income per diluted share $ 1.72 $
3.60 Operating income (non-GAAP)(1) per diluted share 1.29
3.74
Gain (loss) related to FG VIE
consolidation included in operating income
per diluted share
(0.01 ) (0.09 )
Diluted shares 120.7
132.8 Gross written premiums (GWP) $
45 $ 16 Present value of new business
production (PVP)(1) 43 50 Gross par written 3,417 4,687
Summary Financial Results
(continued)
(in millions, except per share amounts)
As of
September 30, 2017 December 31, 2016
Amount Per Share Amount Per
Share Shareholders' equity $ 6,878
$ 58.32 $ 6,504 $ 50.82
Non-GAAP operating shareholders' equity (1) 6,590 55.87 6,386 49.89
Non-GAAP adjusted book value (1) 8,820 74.78 8,506 66.46 Gain
(loss) related to FG VIE consolidation included in non-GAAP
operating shareholders' equity 3 0.01 (7 ) (0.06 ) Gain (loss)
related to FG VIE consolidation included in non-GAAP adjusted book
value (13 ) (0.11 ) (24 ) (0.18 )
Common shares
outstanding 117.9 128.0
________________________________________________
(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.”
“Assured Guaranty delivered a solid performance during the third
quarter,” said Dominic Frederico, Chairman and CEO of Assured
Guaranty. “We continued to lead the new issue U.S. municipal bond
insurance market in both par and transactions insured. We
successfully executed our alternative strategies by completing
important investment and commutation transactions, and we continued
to repurchase shares for capital management purposes. Our
shareholders’ equity, non-GAAP operating shareholders’ equity and
non-GAAP adjusted book value all set per-share records.”
Third Quarter Results
GAAP Financial Information
Net income for third quarter 2017 was $208 million, compared
with net income of $479 million for the three-month period ended
September 30, 2016 (third quarter 2016). Net income in both third
quarter 2017 and third quarter 2016 had significant gains
attributable to our strategic initiatives. Third quarter 2017
included pretax commutation gains of $255 million related to the
reassumption of previously ceded contracts. Third quarter 2016
included a pretax gain of $259 million related to the acquisition
of CIFG Holding Inc. (CIFG Acquisition). Excluding the commutation
gain and the gain on acquisition, net income decreased in third
quarter 2017 compared with third quarter 2016 due mainly to higher
loss and loss adjustment expenses (LAE), and lower net earned
premiums.
Loss and LAE was $223 million in third quarter 2017, compared
with a benefit of $9 million in third quarter 2016. The expense in
third quarter 2017 was due mainly to the increase in loss reserves
on Puerto Rico exposures. The benefit in third quarter 2016 was due
primarily to changes in discount rates, and the purchase of insured
bonds to mitigate losses, which was partially offset by an increase
in loss reserves on certain Puerto Rico exposures.
Net earned premiums were $186 million in third quarter 2017,
compared with $231 million in third quarter 2016. The decrease was
due primarily to lower premium accelerations from refundings and
terminations.
Fair value gains on credit derivatives were $58 million in third
quarter 2017, and were attributable primarily to the termination of
several transactions, the run off of net par outstanding and the
Company's credit risk. Fair value gains on credit derivatives in
third quarter 2016 were $21 million and were generated primarily by
the termination of several transactions and price improvements on
the underlying collateral. 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.
The lower effective tax rate in third quarter 2016, compared
with third quarter 2017, was primarily due to the non-taxable
bargain purchase gain from the CIFG Acquisition in third quarter
2016.
Consolidated Statements of Operations
(unaudited)
(in millions)
Quarter Ended September 30,
2017 2016 Revenues: Net earned premiums
$ 186 $ 231 Net investment income 99 94 Net realized investment
gains (losses) 7 (2 ) Net change in fair value of credit
derivatives: Realized gains (losses) and other settlements (1 ) 15
Net unrealized gains (losses) 59 6 Net change in fair
value of credit derivatives 58 21
Fair value gains (losses) on committed
capital securities (CCS)
(4 ) (23 ) Fair value gains (losses) on FG VIEs 3 (11 ) Bargain
purchase gain and settlement of pre-existing relationships — 259
Other income (loss) 274 (3 )
Total revenues
623 566 Expenses: Loss and LAE 223 (9 )
Amortization of deferred acquisition costs 5 4 Interest expense 24
26 Other operating expenses 58 65
Total
expenses 310 86 Income (loss)
before income taxes 313 480 Provision (benefit)
for income taxes 105 1
Net income (loss)
$ 208 $ 479
Economic Loss Development
The economic development in third quarter 2017 was a loss of
$204 million. The development was primarily related to Puerto Rico,
which sustained major damage during Hurricane Maria. This was
partially offset by a $19 million benefit in United States (U.S.)
residential mortgage-backed securities that was mainly attributable
to the improvement in the performance of the underlying collateral.
The economic loss development attributable to the increase in
discount rates was a benefit of $6 million for third quarter
2017.
Roll Forward of Net Expected Loss to be
Paid (1)
(in millions)
Net Expected
Loss to be Paid
(Recovered) as of
June 30, 2017
Economic Loss
Development/
(Benefit)
Losses (Paid)/
Recovered
Net Expected Loss
to be Paid
(Recovered) as of
September 30, 2017
Public finance $ 1,086 $ 229 $ (222 ) $ 1,093
U.S. residential mortgage-backed
securities
182 (19 ) 13 176 Other structured finance 29 (6 ) 0
23
Total $ 1,297 $ 204
$ (209 ) $ 1,292
________________________________________________
(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 September 30, 2017
2016 GWP PVP(1)
Gross Par
Written
GWP PVP(1)
Gross Par
Written
Public finance - U.S.
$ 37 $ 39 $ 3,328
$ 24 $ 25 $ 3,459 Public finance - non - U.S.
8 4 89
(9 ) 2 164 Structured finance - U.S.
1 0 —
1 23 1,064 Structured finance - non-U.S.
(1 ) — —
0 — —
Total $ 45 $ 43 $ 3,417
$ 16 $ 50 $ 4,687
________________________________________________
(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 financial guaranty
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 financial guaranty business. In third quarter 2017,
U.S. public finance GWP increased to $37 million from $24 million
in third quarter 2016, due primarily to increased PVP.
U.S. public finance PVP increased in third quarter 2017 compared
with the comparable prior-year period due to higher par written in
the secondary market. Assured Guaranty's secondary market PVP
increased by more than four times compared with third quarter 2016.
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 $4 million of public
finance PVP in third quarter 2017. The two transactions written in
third quarter 2017 were secondary market guarantees on regulated
utilities.
Other Non-GAAP Financial Measures
Non-GAAP operating income was $156 million in third quarter
2017, compared with $497 million in third quarter 2016. Similar to
net income results, operating income in third quarter 2017 included
pretax commutation gains of $255 million, and third quarter 2016
included a pretax gain of $259 million related to the CIFG
Acquisition. Excluding the commutation gain and the gain on
acquisition, operating income decreased in third quarter 2017
compared with third quarter 2016 due mainly to higher loss and LAE,
and lower net earned premiums.
Operating loss and LAE was $224 million in third quarter 2017,
compared with a benefit of $17 million in third quarter 2016. The
components of operating loss and LAE are similar to loss and LAE
discussed above. Net earned premiums included in operating income
are the same as those for net income discussed above.
The effects of FG VIE consolidation included in operating income
(non-GAAP) were losses of $1 million in third quarter 2017 and $11
million in third 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
5.43
$ 39.83 Second quarter 2017
135
3.46
39.05
Third quarter 2017
80
1.85
43.29
Fourth quarter 2017 (through November 2)
20
0.53
37.48
Total 2017
$
451
11.27
$
40.05
From 2013 through November 2, 2017, the Company repurchased 79.9
million common shares at an average price of $27.11, representing
approximately 41% of the total shares outstanding at the beginning
of the repurchase program in 2013. On November 1, 2017, the Board
of Directors approved an incremental $300 million share repurchase
authorization. The remaining authorization is $398 million as of
November 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 September 30, 2017
December 31, 2016 Assets Investment portfolio: Fixed
maturity securities, available-for-sale, at fair value $ 10,546 $
10,233 Short-term investments, at fair value 949 590 Other invested
assets 96 162 Total investment portfolio 11,591 10,985 Cash
72 118 Premiums receivable, net of commissions payable 922 576
Ceded unearned premium reserve 108 206 Deferred acquisition costs
105 106 Reinsurance recoverable on unpaid losses 39 80 Salvage and
subrogation recoverable 497 365 Credit derivative assets 3 13
Deferred tax asset, net 135 497 Current income tax receivable 72 12
FG VIE assets, at fair value 707 876 Other assets 398 317
Total assets $ 14,649 $
14,151 Liabilities and shareholders' equity
Liabilities Unearned premium reserve $ 3,597 $ 3,511 Loss
and LAE reserve 1,326 1,127 Reinsurance balances payable, net 45 64
Long-term debt 1,292 1,306 Credit derivative liabilities 305 402 FG
VIE liabilities with recourse, at fair value 657 807 FG VIE
liabilities without recourse, at fair value 111 151 Other
liabilities 438 279
Total liabilities 7,771
7,647 Shareholders' equity Common stock 1 1
Additional paid-in capital 637 1,060 Retained earnings 5,913 5,289
Accumulated other comprehensive income 326 149 Deferred equity
compensation 1 5
Total shareholders' equity
6,878 6,504 Total liabilities and
shareholders' equity $ 14,649 $
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) non-GAAP 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 September 30,
2017 2016 Net income (loss)
$ 208 $ 479 Less pre-tax adjustments:
Realized gains (losses) on investments 7 (2 )
Non-credit impairment unrealized fair
value gains (losses) on credit
derivatives
55 (4 ) Fair value gains (losses) on CCS (4 ) (23 )
Foreign exchange gains (losses) on
remeasurement of premiums receivable
and loss and LAE reserves
18 (2 ) Total pre-tax adjustments 76 (31 ) Less tax effect
on pre-tax adjustments (24 ) 13 Operating income (non-GAAP)
$ 156 $ 497
Gain (loss) related to FG VIE
consolidation (net of tax benefit of $1 and
$6) included in operating
income
$ (1 ) $ (11 )
________________________________________________
(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 September 30, 2017 September 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 ) $ —
$ (4 ) Net investment income — (2 ) 1 (2 ) Net realized investment
gains (losses) 7 — (2 ) — Net change in fair value of credit
derivatives 54 — 3 — Fair value gains (losses) on CCS (4 ) — (23 )
— Fair value gains (losses) on FG VIEs — 3 — (11 ) Other income
(loss) 18 0 (2 ) 0
Total revenue
adjustments 75 (3 ) (23 ) (17 )
Adjustments to expenses:
Loss expense (1 ) (1 ) 8 0
Total expense
adjustments (1 ) (1 ) 8 0
Pre-tax
adjustments 76 (2 ) (31 ) (17 ) Tax effect of adjustments 24
(1 ) (13 ) (6 )
After-tax adjustments $ 52 $
(1 ) $ (18 ) $ (11 )
________________________________________________
(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 effects related to
the above adjustments, which are determined by applying the
statutory tax rate in each of the jurisdictions that generate these
adjustments.
Management uses 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
September 30,
2017
December 31,
2016
Shareholders' equity $ 6,878 $
6,504 Less pre-tax adjustments:
Non-credit impairment unrealized fair
value gains (losses) on credit
derivatives
(129 ) (189 ) Fair value gains (losses) on CCS 58 62
Unrealized gain (loss) on investment
portfolio excluding foreign
exchange effect
506 316 Less taxes (147 ) (71 ) Non-GAAP operating shareholders'
equity 6,590 6,386 Pre-tax adjustments: Less: Deferred acquisition
costs 106 106 Plus: Net present value of estimated net future
revenue 144 136
Plus: Net unearned premium reserve on
financial guaranty contracts in
excess of expected loss to be expensed
3,091 2,922 Plus taxes (899 ) (832 ) Non-GAAP adjusted book value $
8,820 $ 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 $7 and $12)
$ (13 ) $ (24 )
Shares outstanding at the end of the period 117.9 128.0
Per share: Shareholders' equity $ 58.32
$ 50.82 Non-GAAP operating shareholders' equity 55.87
49.89 Non-GAAP adjusted book value 74.78 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
for non-financial guaranty insurance contracts. 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 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 September 30, 2017
Public Finance Structured Finance
U.S. Non - U.S. U.S. Non -
U.S. Total GWP $ 37 $
8 $ 1 $ (1 ) $
45
Less: Installment GWP and other GAAP
adjustments(2)
2 8 1 (1 ) 10 Upfront GWP 35 — — — 35 Plus:
Installment premium PVP 4 4 0 — 8 PVP $
39 $ 4 $ 0 $ — $ 43
Quarter Ended September 30, 2016 Public
Finance Structured Finance U.S.
Non - U.S. U.S. Non - U.S.
Total GWP $ 24 $ (9
) $ 1 $ 0 $ 16
Less: Installment GWP and other GAAP
adjustments(2)
(1 ) (9 ) 1 0 (9 ) Upfront GWP 25 — — — 25 Plus:
Installment premium PVP 0 2 23 — 25
PVP $ 25 $ 2 $ 23 $ — $ 50
________________________________________________
(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 Friday, November 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 February 2, 2018. To listen to the replay, dial
1-877-344-7529 (in the U.S.) or 1-412-317-0088 (International),
passcode 10113666. The replay will be available one hour after the
conference call ends.
Please refer to Assured Guaranty's September 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 3Q
2017,” which lists the U.S. public finance new issues insured by
the Company in third quarter 2017, and
- “Structured Finance Transactions at
September 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 “September
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 November 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/20171102006758/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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