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Assured Guaranty Ltd. Reports Results for Second Quarter 2022

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  • GAAP Highlights: Net loss attributable to Assured Guaranty Ltd. was $47 million, or $0.74 per share, for second quarter 2022, which includes after-tax losses of: $63 million related to foreign exchange remeasurement, $27 million on alternative investments, $25 million on available-for-sale investments, and $15 million on trading securities. Shareholders’ equity attributable to Assured Guaranty Ltd. per share was $84.89 as of June 30, 2022.

  • Non-GAAP Highlights: Adjusted operating income(1) was $30 million, or $0.46 per share, for second quarter 2022, which includes after-tax losses of $27 million on alternative investments and $15 million on trading securities. Adjusted operating shareholders’ equity(1) per share and adjusted book value (ABV)(1) per share were $90.18 and $134.91, respectively, as of June 30, 2022.

  • Return of Capital to Shareholders: Second quarter 2022 capital returned to shareholders was $167 million, including the repurchase of 2.6 million shares for $151 million, and dividends of $16 million.

    • As of June 30, 2022, 62.5 million common shares were outstanding.

    • Share repurchase authorization was increased by $250 million on August 3, 2022.

  • Insurance Segment:

    • Insurance segment adjusted operating income was $55 million for second quarter 2022, which includes after-tax losses of: $27 million on alternative investments, and $15 million on trading securities

    • Gross written premiums (GWP) were $65 million for second quarter 2022.

    • Present value of new business production (PVP)(2) was $76 million for second quarter 2022.

  • Asset Management Segment

    • Asset Management segment adjusted operating results were breakeven for second quarter 2022.

    • Assets under management (AUM) inflows were $1.3 billion(2) for second quarter 2022.

HAMILTON, Bermuda, August 03, 2022--(BUSINESS WIRE)--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, 2022 (second quarter 2022).

"While Assured Guaranty’s June 30 shareholders’ equity per share was impacted by unrealized losses in the investment portfolio due largely to the rising interest rate environment, we achieved the highest per-share levels of adjusted operating shareholders’ equity and adjusted book value in our history.

"New business production in our insurance segment remained strong during both the first half and second quarter, resulting in $135 million of first half gross written premiums and $145 million of first half PVP, derived from all three of our market sectors. We again led the U.S. municipal bond insurance market, where industry penetration reached 8.9% of new-issue par sold in second quarter and 8.8% year-to-date," said President and CEO Dominic Frederico.

(1)

Please see "Explanation of Non-GAAP Financial Measures."

(2)

Net of transfers between funds managed by Assured Investment Management LLC and its investment management affiliates (AssuredIM Funds).

Summary Financial Results

(in millions, except per share amounts)

Quarter Ended

June 30,

2022

2021

GAAP

Net income (loss) attributable to AGL

$

(47

)

$

98

Net income (loss) attributable to AGL per diluted share

$

(0.74

)

$

1.29

Weighted average diluted shares (1)

63.8

76.0

Non-GAAP

Adjusted operating income (loss) (2)

$

30

$

120

Adjusted operating income per diluted share(2)

$

0.46

$

1.59

Weighted average diluted shares

65.0

76.0

Components of total adjusted operating income (loss)

Insurance segment

$

55

$

152

Asset Management segment

(2

)

Corporate division

(35

)

(34

)

Other

10

4

Adjusted operating income (loss)

$

30

$

120

As of

June 30, 2022

December 31, 2021

Amount

Per Share

Amount

Per Share

Shareholders' equity attributable to AGL

$

5,304

$

84.89

$

6,292

$

93.19

Adjusted operating shareholders’ equity (2)

5,634

90.18

5,991

88.73

ABV (2)

8,428

134.91

8,823

130.67

Common Shares Outstanding

62.5

67.5

(1)

In periods where the Company recognized a net loss, the impact of potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect.

(2)

Please see "Explanation of Non-GAAP Financial Measures" at the end of this press release.

On a per share basis, shareholders’ equity attributable to AGL was $84.89 as of June 30, 2022, which was lower than shareholders’ equity attributable to AGL of $93.19 as of December 31, 2021, primarily due to unrealized losses on the investment portfolio caused largely by rising interest rates. On a per share basis, adjusted operating shareholders’ equity and ABV reached record highs primarily due to the accretive effect of the share repurchase program, and in the case of ABV, favorable loss development and net written premiums. See "Common Share Repurchases" on page 10.

Insurance Segment

The Insurance segment primarily consists of the Company's insurance subsidiaries that provide credit protection products to the United States (U.S.) and non-U.S. public finance (including infrastructure) and structured finance markets.

Insurance Segment Results

(in millions)

Quarter Ended

June 30,

2022

2021

Segment revenues

Net earned premiums and credit derivative revenues

$

86

$

106

Net investment income

66

71

Fair value gains (losses) on trading securities

(18

)

Other income (loss)

5

5

Total segment revenues

139

182

Segment expenses

Loss expense (benefit)

(17

)

(12

)

Amortization of deferred acquisition costs (DAC)

3

4

Employee compensation and benefit expenses

35

34

Other operating expenses

20

21

Total segment expenses

41

47

Equity in earnings (losses) of investees

(34

)

48

Segment adjusted operating income (loss) before income taxes

64

183

Less: Provision (benefit) for income taxes

9

31

Segment adjusted operating income (loss)

$

55

$

152

Insurance segment adjusted operating income decreased to $55 million in second quarter 2022 compared with $152 million in the three-month period ended June 30, 2021 (second quarter 2021), primarily due to lower net asset values for AssuredIM Funds reported in "equity in earnings (losses) of investees", fair value losses on trading securities, and lower net earned premiums and credit derivative revenues, as shown in the table above. The components of premiums, losses and income from the investment portfolio are presented below.

The components of Insurance segment net earned premiums and credit derivative revenues are shown in the table below.

Insurance Segment

Net Earned Premiums and Credit Derivative Revenues

(in millions)

Quarter Ended

June 30,

2022

2021

Scheduled net earned premiums and credit derivative revenues

$

81

$

91

Accelerations

5

15

Total

$

86

$

106

The decline in net earned premiums and credit derivative revenues was primarily attributable to lower accelerations and changes in debt service assumptions.

The components of Insurance segment loss expense (benefit) and the rollforward of expected losses are presented in the tables below.

Insurance Segment

Loss Expense (Benefit)

(in millions)

Quarter Ended

June 30,

2022

2021

Public finance

$

11

$

3

U.S. residential mortgage-backed securities (RMBS)

(28

)

(22

)

Other structured finance

7

Total

$

(17

)

$

(12

)

Loss expense is a function of economic loss (benefit) development, as well as the amortization of deferred premium revenue. In second quarter 2022, the largest component of the U.S. public finance loss expense was attributable to Puerto Rico exposures. The benefit in U.S. RMBS in both periods presented is primarily related to second lien transactions.

Roll Forward of Net Expected Loss to be Paid (Recovered)(1)

(in millions)

Net Expected
Loss to be Paid
(Recovered) as of
March 31, 2022

Economic Loss
(Benefit)
Development

Net (Paid)
Recovered Losses

Net Expected
Loss to be Paid
(Recovered) as of
June 30, 2022

Public finance

$

191

$

6

$

20

$

217

U.S. RMBS

195

(39

)

23

179

Other structured finance

46

1

(1

)

46

Total

$

432

$

(32

)

$

42

$

442

(1)

Economic loss (benefit) development represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts, each net of reinsurance. Economic loss development (benefit) is the principal measure that the Company uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid (recovered) includes all transactions insured by the Company, 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), and without consideration of unearned premium reserves.

The economic benefit attributable to U.S. RMBS in second quarter 2022 was $39 million, which was mainly attributable to changes in discount rates, improved performance in certain transactions, higher recoveries for secured second lien charged-off loans, and lower initial severity assumptions for first lien U.S. RMBS transactions, partially offset by lower excess spread.

The components of income from the investment portfolio are presented in the table below.

Insurance Segment

Income from Investment Portfolio

(in millions)

Quarter Ended

June 30,

2022

2021

Net investment income

$

66

$

71

Fair value gains (losses) on trading securities

(18

)

Equity in earnings (losses) of investees:

AssuredIM Funds

(33

)

37

Other alternative investments

(1

)

11

Total

$

14

$

119

The total income from the investment portfolio decreased due primarily to (1) fair value losses from alternative investments, including investments in AssuredIM Funds, (2) fair value losses on trading securities, and (3) lower net investment income on available-for-sale fixed-maturity securities due to lower average balances, which declined as a result of dividends paid by the insurance subsidiaries and liquidity needs associated with the Puerto Rico claim payments in the first quarter of 2022.

Contingent value instruments issued by Puerto Rico and received in the first quarter of 2022 as part of the Puerto Rico resolutions are classified as trading securities with changes in fair value reported in the consolidated statements of operations. Fair value losses on trading securities were $18 million in second quarter 2022.

Equity in earnings of AssuredIM Funds was a loss of $33 million in second quarter 2022 primarily attributable to lower net asset values (NAV) of collateralized loan obligation (CLO) funds and a loss related to dilution from the rebalancing following a final fundraising close for the healthcare fund. Equity in earnings of AssuredIM Funds was a gain of $37 million in second quarter 2021 mainly due to an overall increase in the NAV of the CLO and healthcare funds.

As of June 30, 2022, the Insurance segment had invested $549 million (at fair value) in AssuredIM Funds. Inception to date realized and unrealized gains on AssuredIM Funds as of June 30, 2022 totaled $98 million.

In the Insurance segment, investments in AssuredIM Funds are recorded at NAV, with the change in NAV reported in "equity in earnings (losses) of investees." The AssuredIM Funds include healthcare, CLOs, municipal bond and asset-based funds. Equity in earnings (losses) of investees also includes the Company's proportionate interests in other alternative investments. To the extent that the amounts invested in AssuredIM Funds and other alternative investments increase and available-for-sale fixed-maturity securities decrease, net investment income may decline and mark-to-market volatility may increase.

New Business Production

PVP, a non-GAAP financial measure, measures the value of the Insurance segment’s new business production and includes upfront premiums and the present value of expected future installments on new business at the time of issuance, for all contracts regardless of form or GAAP accounting model. See "Explanation of Non-GAAP Financial Measures" at the end of this press release.

Insurance Segment

New Business Production

(in millions)

Quarter Ended June 30,

2022

2021

GWP

PVP (1)

Gross Par
Written (1)

GWP

PVP (1)

Gross Par
Written (1)

Public finance - U.S.

$

57

$

57

$

6,429

$

29

$

29

$

4,716

Public finance - non-U.S.

6

18

207

44

43

961

Structured finance - U.S.

1

16

11

9

460

Structured finance - non-U.S.

1

1

43

Total

$

65

$

76

$

6,695

$

84

$

81

$

6,137

(1)

PVP and Gross Par Written in the table above are based on "close date," when the transaction settles.

U.S. public finance GWP and PVP in second quarter 2022 was higher than the comparable GWP and PVP in second quarter 2021, primarily due to an increase in secondary market transactions. The average rating of U.S. public finance par written was A in both second quarter 2022 and second quarter 2021. The Company's direct par written represented 54% of the total U.S. municipal market insured issuance in second quarter 2022, compared with 52% in second quarter 2021, and the Company’s penetration of all municipal issuance was 4.8% in second quarter 2022 compared with 4.5% in second quarter 2021.

In second quarter 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Asset Management Segment

Asset Management Segment Results

(in millions)

Quarter Ended

June 30,

2022

2021

Segment revenues

Management fees:

CLOs (1)

$

12

$

12

Opportunity funds and liquid strategies

15

5

Wind-down funds

2

Total management fees

27

19

Performance fees

2

Other income

(1

)

2

Total segment revenues

28

21

Segment expenses

Employee compensation and benefit expenses

17

15

Other operating expenses (2)

11

9

Total segment expenses

28

24

Segment adjusted operating income (loss) before income taxes

(3

)

Less: Provision (benefit) for income taxes

(1

)

Segment adjusted operating income (loss)

$

$

(2

)

(1)

CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO equity that is held directly by AssuredIM Funds.

(2)

Includes amortization of intangible assets of $3 million in both second quarter 2022 and second quarter 2021.

Management fees from opportunity funds increased primarily due to higher third-party AUM in healthcare funds. Fees from the wind-down funds decreased as distributions to investors continued. As of June 30, 2022, AUM of the wind-down funds was $0.3 billion, compared with $1.2 billion as of June 30, 2021, and $0.6 billion as of December 31, 2021.

Roll Forward of

Assets Under Management

(in millions)

CLOs

Opportunity
Funds (1)

Liquid
Strategies (2)

Wind-Down
Funds

Total

AUM, March 31, 2022

$

14,282

$

1,874

$

375

$

459

$

16,990

Inflows-third party

1,049

200

21

1,270

Inflows-intercompany

50

104

154

Outflows:

Redemptions

Distributions

(22

)

(39

)

(125

)

(140

)

(326

)

Total outflows

(22

)

(39

)

(125

)

(140

)

(326

)

Net flows

1,077

161

(140

)

1,098

Change in value

(183

)

15

(3

)

20

(151

)

AUM, June 30, 2022

$

15,176

$

2,050

$

372

$

339

$

17,937

(1)

Opportunity funds inflows are primarily related to the healthcare strategy fund. Distributions from opportunity funds include $26 million related to the AssuredIM Funds created prior to the acquisition of BlueMountain Capital Management, LLC. As of June 30, 2022, AUM related to these funds was $114 million.

(2)

Liquid strategies inflows and outflows relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

Components of

Assets Under Management (1)

(in millions)

As of

June 30,
2022

March 31,
2022

Funded AUM

$

17,046

$

16,249

Unfunded AUM

891

741

Fee-earning AUM

$

17,148

$

16,141

Non-fee earning AUM

789

849

Intercompany AUM

Funded AUM (2)

$

1,100

$

1,124

Unfunded AUM

241

229

(1)

Please see "Definitions" at the end of this press release.

(2)

Includes assets managed by AssuredIM under an Investment Management Agreement with its insurance affiliates of $548 million in investment-grade CLO and liquid municipal strategies as of June 30, 2022 and of $564 million as of March 31, 2022.

Corporate Division

The Corporate division primarily consists of interest expense on the debt of Assured Guaranty US Holdings Inc. and Assured Guaranty Municipal Holdings Inc., as well as other operating expenses attributed to holding company activities. Adjusted operating loss for the corporate division was $35 million in second quarter 2022 compared with $34 million in second quarter 2021.

Other (Effect of FG VIE and CIV consolidation)

The effect of consolidating financial guaranty variable interest entities (FG VIEs) and consolidated investment vehicles (CIVs) was a gain of $10 million in second quarter 2022 compared with $4 million in second quarter 2021.

Reconciliation to GAAP

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

Reconciliation of Net Income (Loss) Attributable to AGL to

Adjusted Operating Income (Loss)

(in millions, except per share amounts)

Quarter Ended

June 30,

2022

2021

Total

Per Diluted
Share

Total

Per Diluted
Share

Net income (loss) attributable to AGL

$

(47

)

$

(0.74

)

$

98

$

1.29

Less pre-tax adjustments:

Realized gains (losses) on investments

(28

)

(0.43

)

4

0.05

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

6

0.09

(31

)

(0.40

)

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

10

...