- Fourth quarter 2012 operating income1increased
7% over fourth quarter 2011 to $184 million, or $0.95 per share. Full
year 2012 operating income was $535 million, or $2.81 per share,
compared with $601 million, or $3.24 per share in 2011.
- Fourth quarter 2012 net income was $74 million, or $0.38 per share,
compared with a fourth quarter 2011 net loss of $84 million, or $0.46
per share. The increase was driven primarily by lower non-economic net
unrealized losses (which are expected to reverse by contract
maturity), and lower loss and loss adjustment expenses. Full year 2012
net income was $110 million, or $0.57 per share, compared with $773
million or $4.16 per share in 2011, declining primarily due to higher
non-economic net unrealized losses.
- Operating shareholders' equity per share1
reached a record level of $30.05, increasing 5% since year-end 2011 in
spite of a 6% increase in shares outstanding. Shareholders' equity per
share also increased.
- Fourth quarter 2012 new par written was $4.0 billion. This brings
full year 2012 new par written plus reassumed par to $36.0 billion,
compared with $17.2 billion in full year 2011.
- Insured leverage improved by 12% year over year2.
HAMILTON, Bermuda -- (Business Wire)
Assured Guaranty Ltd. (NYSE:AGO) (“AGL” and, together with its
subsidiaries, “Assured Guaranty” or the “Company”) announced today its
financial results for the three-month period ended December 31, 2012
(“fourth quarter 2012”) and the year ended December 31, 2012 (“FY 2012”).
The Company reported operating income for fourth quarter 2012 of $184
million, or $0.95 per diluted share. This represents a 7% increase
compared with the three-month period ended December 31, 2011 ("fourth
quarter 2011"), due primarily to higher terminations of structured
finance exposures, and refundings of public finance exposures. Operating
income for FY 2012 was $535 million, or $2.81 per diluted share,
compared with $601 million, or $3.24 per diluted share, for the year
ended December 31, 2011 ("FY 2011"). The decrease in operating income
for FY 2012 compared with FY 2011 was due primarily to the increase in
loss expense on Greek sovereign exposures. The Company no longer has
exposure to Greek sovereign debt.
Fourth quarter 2012 net income was $74 million, or $0.38 per diluted
share, compared with fourth quarter 2011 net loss of $84 million, or
$0.46 per diluted share. FY 2012 net income was $110 million, or $0.57
per diluted share, compared with FY 2011 net income of $773 million, or
$4.16 per diluted share. The main driver of the changes for the fourth
quarter and the full year compared with the respective prior periods was
the non-economic net unrealized fair value changes, which are expected
to reverse by contract maturity.
1 These are financial measures that are not in accordance
with accounting principles generally accepted in the United States of
America (“GAAP”) (“non-GAAP financial measures”). Please see the
“Explanation of Non-GAAP Financial Measures” and the tables reconciling
the non-GAAP measures to GAAP measures in this press release.
2 Insured leverage is ratio of statutory-basis net par
outstanding to qualified statutory capital.
“During 2012, Assured Guaranty generated $535 million of operating
income and brought operating shareholders' equity per share to a record
level,” said Dominic Frederico, President and CEO. “In a difficult
operating environment, we created shareholder value through our
successful execution of strategic objectives including new direct
business production, assumed reinsurance, reassumption of ceded
business, R&W recoveries, insurance terminations and purchases of our
insured securities for loss mitigation. In addition, in February 2012 we
doubled our quarterly dividend to $0.09 per share and further raised it
to $0.10 per share in the first quarter of 2013, a total increase of
122% in the last 12 months.”
Table 1: Reconciliation of Net Income (Loss) to Operating Income1 |
(amounts in millions, except per share amounts) |
|
| |
| |
| |
| | | | Quarter Ended December 31, | | Year Ended December 31, |
| | | | 2012 |
| 2011 | | 2012 |
| 2011 |
| | | | | | | | | |
|
Net income (loss) | | $ | 74 | | | $ | (84 | ) | | $ | 110 | | | $ | 773 | |
Less after-tax adjustments:
| | | | | | | | |
Realized gains (losses) on investments
| |
1
| | |
(6
|
)
| |
(4
|
)
| |
(20
|
)
|
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives
| |
(92
|
)
| |
(265
|
)
| |
(486
|
)
| |
244
| |
Fair value gains (losses) on committed capital securities ("CCS")
| |
(4
|
)
| |
21
| | |
(12
|
)
| |
23
| |
Foreign exchange gains (losses) on remeasurement of premiums
receivable and loss and loss adjustment expense ("LAE") reserves
| |
1
| | |
(1
|
)
| |
15
| | |
(3
|
)
|
Effect of consolidating financial guaranty variable interest
entities ("FG VIEs")
| |
(16
|
)
| |
(5
|
)
| |
62
|
| |
(72
|
)
|
Operating income | | $ | 184 |
| | $ | 172 |
| | $ | 535 |
| | $ | 601 |
|
| | | | | | | | | |
|
Net income (loss) per diluted share
| |
$
|
0.38
| | |
$
|
(0.46
|
)
| |
$
|
0.57
| | |
$
|
4.16
| |
Operating income per diluted share
| |
$
|
0.95
| | |
$
|
0.94
| | |
$
|
2.81
| | |
$
|
3.24
| |
| | | | | | | | | |
|
Diluted shares outstanding-GAAP
| |
194.7
| | |
182.2
| | |
190.7
| | |
185.5
| |
Diluted shares outstanding-operating
| |
194.7
| | |
183.2
| | |
190.7
| | |
185.6
| |
__________________
1. The Company adopted and retrospectively applied new guidance that
changed the types and amount of insurance costs that may be deferred.
This resulted in a reduction of operating income and net income of $1
million and income per share of $0.01 for fourth quarter 2011 and a
reduction of operating income and net income of $3 million and income
per share of $0.02 for FY 2011.
New Business Production
Table 2: Present Value of New Business Production (“PVP”)1
and Gross Par Written |
(amounts in millions) |
|
| |
| Quarter Ended December 31, |
| Year Ended December 31, |
| | | 2012 |
| 2011 | | 2012 |
| 2011 |
| | | | | | |
|
PVP | | | | | | | | |
Public finance - U.S.
| | | | | | | | |
Direct
| |
$
|
37
| | |
$
|
54
| | |
$
|
144
| | |
$
|
173
|
Assumed from Radian Asset Assurance Inc.
| |
—
| | |
—
| | |
22
| | |
—
|
Public finance non - U.S.
| |
—
| | |
3
| | |
1
| | |
3
|
Structured finance - U.S.
| |
32
| | |
31
| | |
43
| | |
60
|
Structured finance - non-U.S.
| |
—
|
| |
—
|
| |
—
|
| |
7
|
| Total PVP | | $ | 69 |
| | $ | 88 |
| | $ | 210 |
| | $ | 243 |
| | | | | | | | |
|
Gross Par Written: | | | | | | | | |
Public finance - U.S.
| | | | | | | | |
Direct
| |
$
|
3,641
| | |
$
|
4,883
| | |
$
|
14,364
| | |
$
|
15,092
|
Assumed from Radian Asset Assurance Inc.
| |
—
| | |
—
| | |
1,797
| | |
—
|
Public finance non - U.S.
| |
—
| | |
127
| | |
35
| | |
127
|
Structured finance - U.S.
| |
400
| | |
582
| | |
620
| | |
1,673
|
Structured finance - non-U.S.
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| Gross par written | | $ | 4,041 |
| | $ | 5,592 |
| | $ | 16,816 |
| | $ | 16,892 |
|
__________________
1. PVP is a non-GAAP financial measure. See the “Explanation of Non-GAAP
Financial Measures” section of this press release.
Fourth quarter 2012 PVP includes a large life insurance reserve
financing in the U.S. structured finance sector. For FY 2012, the
Company executed a total of $620 million in par of new structured
finance transactions. The size and frequency of structured finance
transactions vary significantly from period to period.
The decline in fourth quarter 2012 public finance PVP reflects primarily
the low interest environment, tight credit spreads and the ratings
uncertainty following Moody's decision to place the financial strength
ratings of the Company's U.S. financial guaranty operating subsidiaries
on review for downgrade. These conditions also caused a decline in FY
2012 direct PVP, which was partially offset by a new assumed reinsurance
contract with Radian Asset Assurance Inc. Despite the challenging
interest rate and market environment, the Company maintained average new
business credit ratings in the single-A category. In addition, premium
rates in fourth quarter 2012 and FY 2012 for public finance were
consistent by sector with rates in fourth quarter 2011 and FY 2011.
Fourth Quarter 2012 Operating Income Highlights
Table 3 highlights the components of Assured Guaranty's operating income
and provides reconciliations of GAAP income statements as reported to
non-GAAP operating income results.
Table 3: Reconciliation of GAAP |
to Non-GAAP Income Results |
(amounts in millions, except per share amounts) |
|
|
|
| |
| Quarter Ended December 31, 2012 |
| Quarter Ended December 31, 2011 |
| | | | | GAAP Income Statement As Reported |
| Less: Operating Income Adjustments |
| Non-GAAP Operating Income Results | | GAAP Income Statement As Reported |
| Less: Operating Income Adjustments |
| Non-GAAP Operating Income Results |
Revenues: | | | | | | | | | | | | |
|
Net earned premiums
| |
$
|
218
| | |
$
|
(103
|
)
| |
$
|
321
| | |
$
|
225
| | |
$
|
(18
|
)
| |
$
|
243
| |
|
Net investment income
| |
103
| | |
4
| | |
99
| | |
101
| | |
8
| | |
93
| |
|
Net realized investment gains (losses)
| |
1
| | |
—
| | |
1
| | |
(5
|
)
| |
(6
|
)
| |
1
| |
|
Net change in fair value of credit derivatives
| |
(119
|
)
| |
(150
|
)
| |
31
| | |
(295
|
)
| |
(332
|
)
| |
37
| |
|
Fair value gains (losses) on CCS
| |
(6
|
)
| |
(6
|
)
| |
—
| | |
32
| | |
32
| | |
—
| |
|
Fair value gains (losses) on FG VIEs
| |
36
| | |
36
| | |
—
| | |
22
| | |
22
| | |
—
| |
|
Other income
| |
(4
|
)
| |
1
|
| |
(5
|
)
| |
(1
|
)
| |
(2
|
)
| |
1
|
|
| | Total revenues | | 229 | | | (218 | ) | | 447 | | | 79 | | | (296 | ) | | 375 | |
| | | | | | | | | | | | | | |
|
Expenses: | | | | | | | | | | | | |
|
Loss expense:
| | | | | | | | | | | | |
| |
Financial guaranty insurance
| |
64
| | |
(44
|
)
| |
108
| | |
149
| | |
13
| | |
136
| |
| |
Credit derivatives
| |
—
| | |
(19
|
)
| |
19
| | |
—
| | |
54
| | |
(54
|
)
|
|
Amortization of deferred acquisition costs
| |
0
| | |
—
| | |
0
| | |
4
| | |
—
| | |
4
| |
|
Interest expense
| |
21
| | |
—
| | |
21
| | |
25
| | |
—
| | |
25
| |
|
Other operating expenses
| |
49
|
| |
—
|
| |
49
|
| |
49
|
| |
—
|
| |
49
|
|
| | Total expenses | | 134 | | | (63 | ) | | 197 | | | 227 | | | 67 | | | 160 | |
| | | | |
| |
| |
| |
| |
| |
|
Income (loss) before income taxes | | 95 | | | (155 | ) | | 250 | | | (148 | ) | | (363 | ) | | 215 | |
Provision (benefit) for income taxes
| |
21
|
| |
(45
|
)
| |
66
|
| |
(64
|
)
| |
(107
|
)
| |
43
|
|
Income (loss) | | $ | 74 |
| | $ | (110 | ) | | $ | 184 |
| | $ | (84 | ) | | $ | (256 | ) | | $ | 172 |
|
| | | | | | | | | | | | | | |
|
Diluted shares | | 194.7 | | | | | 194.7 | | | 182.2 | | | | | 183.2 | |
| | | | | | | | | | | | | | |
|
Earnings per diluted share | | $ | 0.38 | | | | | $ | 0.95 | | | $ | (0.46 | ) | | | | $ | 0.94 | |
|
Components of fourth quarter 2012 operating income are compared with the
same items in fourth quarter 2011.
- Net earned premiums: Net earned premiums on an operating income
basis increased to $321 million from $243 million in fourth quarter
2011, due primarily to higher terminations and refundings, which were
$153 million in fourth quarter 2012 compared with $48 million in
fourth quarter 2011. Approximately $94 million in net earned premiums
in fourth quarter 2012 was due to terminations, and the remainder was
attributable to refundings of public finance transactions, which
generally occur more often in low interest rate environments as debt
issuers refinance at more attractive rates.
- Credit derivative revenues: Credit derivative revenues included
in operating income were $31 million, compared with fourth quarter
2011 credit derivative revenues of $37 million, which were based on a
larger portfolio of structured finance business at that time.
- Loss expense: The Company's fourth quarter 2012 loss expense
was $127 million ($88 million after tax, or $0.45 per diluted share),
compared with $82 million ($48 million after tax, or $0.26 per diluted
share) in fourth quarter 2011. The increase was primarily due to
higher loss expense in the U.S. residential mortgage-backed securities
(“RMBS”) sector.
- Income taxes: The fourth quarter 2012 effective tax rate on
operating income was 26.3%, compared with 19.6% in fourth quarter
2011, due to a lower proportion of operating income in Assured
Guaranty Re Ltd. in fourth quarter 2012.
Full Year 2012 Operating Income Highlights
Table 4 highlights the components of Assured Guaranty's operating income
and provides reconciliations of GAAP income statements as reported to
non-GAAP operating income results.
Table 4: Reconciliation of GAAP |
to Non-GAAP Income Results |
(amounts in millions, except per share amounts)
|
|
|
| |
| |
| |
| | | | | Year Ended December 31, 2012 | | Year Ended December 31, 2011 |
| | | | | GAAP Income Statement As Reported |
| Less: Operating Income Adjustments |
| Non-GAAP Operating Income Results | | GAAP Income Statement As Reported |
| Less: Operating Income Adjustments |
| Non-GAAP Operating Income Results |
Revenues: | | | | | | | | | | | | |
|
Net earned premiums
| |
$
|
853
| | |
$
|
(153
|
)
| |
$
|
1,006
| | |
$
|
920
| | |
$
|
(75
|
)
| |
$
|
995
| |
|
Net investment income
| |
404
| | |
14
| | |
390
| | |
396
| | |
3
| | |
393
| |
|
Net realized investment gains (losses)
| |
1
| | |
(6
|
)
| |
7
| | |
(18
|
)
| |
(18
|
)
| |
0
| |
|
Net change in fair value of credit derivatives
| |
(585
|
)
| |
(712
|
)
| |
127
| | |
560
| | |
372
| | |
188
| |
|
Fair value gains (losses) on CCS
| |
(18
|
)
| |
(18
|
)
| |
—
| | |
35
| | |
35
| | |
—
| |
|
Fair value gains (losses) on FG VIEs
| |
210
| | |
210
| | |
—
| | |
(132
|
)
| |
(132
|
)
| |
—
| |
|
Other income
| |
108
|
| |
11
|
| |
97
|
| |
58
|
| |
18
|
| |
40
|
|
| Total revenues | | 973 | | | (654 | ) | | 1,627 | | | 1,819 | | | 203 | | | 1,616 | |
| | | | | | | | | | | | | | |
|
Expenses: | | | | | | | | | | | | |
|
Loss expense:
| | | | | | | | | | | | |
|
Financial guaranty insurance
| |
523
| | |
(45
|
)
| |
568
| | |
462
| | |
(93
|
)
| |
555
| |
|
Credit derivatives
| |
—
| | |
(28
|
)
| |
28
| | |
—
| | |
62
| | |
(62
|
)
|
|
Amortization of deferred acquisition costs
| |
14
| | |
—
| | |
14
| | |
17
| | |
—
| | |
17
| |
|
Interest expense
| |
92
| | |
—
| | |
92
| | |
99
| | |
—
| | |
99
| |
|
Other operating expenses
| |
212
|
| |
—
|
| |
212
|
| |
212
|
| |
—
|
| |
212
|
|
| Total expenses | | 841 | | | (73 | ) | | 914 | | | 790 | | | (31 | ) | | 821 | |
| | | | |
| |
| |
| |
| |
| |
|
Income (loss) before income taxes | | 132 | | | (581 | ) | | 713 | | | 1,029 | | | 234 | | | 795 | |
Provision (benefit) for income taxes
| |
22
|
| |
(156
|
)
| |
178
|
| |
256
|
| |
62
|
| |
194
|
|
Income (loss) | | $ | 110 |
| | $ | (425 | ) | | $ | 535 |
| | $ | 773 |
| | $ | 172 |
| | $ | 601 |
|
| | | | | | | | | | | | | | |
|
Diluted shares | | 190.7 | | | | | 190.7 | | | 185.5 | | | | | 185.6 | |
| | | | | | | | | | | | | | |
|
Earnings per diluted share | | $ | 0.57 | | | | | $ | 2.81 | | | $ | 4.16 | | | | | $ | 3.24 | |
|
Components of FY 2012 operating income are compared with the same items
in FY 2011.
- Net earned premiums: Net earned premiums in FY 2012 operating
income increased to $1,006 million, from $995 million in FY 2011, due
primarily to higher terminations and refundings, which generated $331
million in FY 2012, compared with $125 million in FY 2011.
Approximately $122 million in net earned premiums in FY 2012 was due
to terminations, and the remainder was attributable to refundings of
public finance transactions. The increase was offset in part by a
decline in the inforce book of business, in particular structured
finance.
- Credit derivative revenues: Credit derivative revenues included
in FY 2012 operating income were $127 million. The comparable FY 2011
credit derivative revenues were $188 million, which was based on a
larger portfolio of structured finance business at that time.
- Other Income: Other Income in FY 2012 operating income
increased to $97 million from $40 million in FY 2011, primarily due to
commutation gains related to the reassumption of previously ceded
books of business from two reinsurers.
- Loss expense: The Company's FY 2012 loss expense was $596
million ($424 million after tax, or $2.22 per diluted share), compared
with $493 million ($347 million after tax, or $1.87 per diluted share)
in FY 2011. The increase was primarily due to higher loss expense on
Greek sovereign exposures. The Company has no further exposure to
Greek sovereign debt.
- Income taxes: FY 2012 effective tax rate on operating income
was 25.0%, compared with 24.4% in FY 2011.
Economic Loss Development
Economic loss development represents the change in net expected loss to
be paid attributable to all factors other than loss and LAE payments. It
includes 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 Assured Guaranty 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 GAAP. Table 5 provides a roll forward of net expected loss to be
paid.
Table 5: Roll Forward of Net Expected Loss to be Paid on |
Insurance Contracts and Credit Derivatives |
(amounts in millions) |
|
Quarter Ended December 31, 2012 |
|
Insurance Contracts and Credit Derivatives |
| Net Expected Loss to be Paid as of September 30, 2012 |
| Economic Loss Development During Fourth Quarter 2012 |
| Loss (Paid) Recovered Fourth Quarter 2012 |
| Net Expected Loss to be Paid as of December 31, 2012 |
| | | | | | | |
|
Before recoveries for breaches of representations and warranties
("R&W"):
| | | | | | | | |
|
U.S. RMBS
| |
$
|
1,704
| | |
$
|
168
| | |
$
|
(220
|
)
| |
$
|
1,652
| |
|
Other
| |
424
|
| |
(14
|
)
| |
(12
|
)
| |
398
|
|
Total before recoveries for breaches of R&W
| |
2,128
| | |
154
| | |
(232
|
)
| |
2,050
| |
R&W for U.S. RMBS
| |
(1,371
|
)
| |
(70
|
)
| |
71
|
| |
(1,370
|
)
|
Total, net of R&W
| |
757
| | |
84
| | |
(161
|
)
| |
680
| |
Other
| |
(4
|
)
| |
(11
|
)
| |
12
|
| |
(3
|
)
|
| Total | | $ | 753 |
| | $ | 73 |
| | $ | (149 | ) | | $ | 677 |
|
|
Year Ended December 31, 2012 |
|
Insurance Contracts and Credit Derivatives |
| Net Expected Loss to be Paid as of December 31, 2011 |
| Economic Loss Development During Year Ended 2012 (1) |
| Loss (Paid) Recovered Year Ended 2012 |
| Net Expected Loss to be Paid as of December 31, 2012 |
| | | | | | | |
|
Before recoveries for breaches of R&W:
| | | | | | | | |
|
U.S. RMBS
| |
$
|
2,281
| | |
$
|
367
| | |
$
|
(996
|
)
| |
$
|
1,652
| |
|
Other
| |
473
|
| |
267
|
| |
(342
|
)
| |
398
|
|
Total before recoveries for breaches of R&W
| |
2,754
| | |
634
| | |
(1,338
|
)
| |
2,050
| |
R&W for U.S. RMBS
| |
(1,650
|
)
| |
(179
|
)
| |
459
|
| |
(1,370
|
)
|
Total, net of R&W
| |
1,104
| | |
455
| | |
(879
|
)
| |
680
| |
Other
| |
2
|
| |
(17
|
)
| |
12
|
| |
(3
|
)
|
| Total | | $ | 1,106 |
| | $ | 438 |
| | $ | (867 | ) | | $ | 677 |
|
|
__________________
1. Includes $12 million of foreign exchange remeasurement.
Fourth Quarter 2012:
Total economic loss development was $73 million ($53 million after tax)
in fourth quarter 2012, which was primarily driven by higher LAE and
development in U.S. RMBS exposures. R&W development was $70 million in
fourth quarter 2012 due in part to the favorable judgment received on
the Flagstar Bank litigation (subject to appeal) and the settlement of a
transaction with another R&W provider.
Full Year 2012:
Total economic loss development was $438 million ($319 million after
tax) for FY 2012, which was driven primarily by the Company's troubled
European exposures (in particular the loss on Greek sovereign exposures
and loss development on Spanish sub-sovereign exposures), and loss
development on U.S. RMBS exposures.
Book Value Measurements
The primary drivers of the year-to-date increase in shareholders'
equity, operating shareholders' equity and adjusted book value were the
issuance of common shares as described below and the reassumptions of
previously ceded business, both of which were offset in part by loss
development, dividends and share repurchases. Shareholders' equity was
also affected by net fair value losses on credit derivatives and gains
related to FG VIEs, which do not affect operating shareholders' equity
or adjusted book value. PVP and the additional future earnings from the
reassumption of previously ceded books of business, increased adjusted
book value, which includes the estimated future earnings on the
Company's in-force book of business.
Per share amounts were affected by an additional 13.4 million common
shares outstanding following the issuance of common shares to settle
forward purchase contracts that constituted a portion of the Company's
2009 equity units. The purchase price was $12.85 per share, for a total
of $173 million. This was offset in part by the repurchase of 2.1
million common shares at an average price of $11.76 per share, or $24
million.
Table 6: Reconciliation of Shareholders' Equity to |
Operating Shareholders' Equity and Adjusted Book Value(1) |
(amounts in millions, except per share amounts) |
|
|
| |
| As of |
| | | | December 31, 2012 |
| December 31, 2011 |
| | | | | |
|
Shareholders' equity | | $ | 4,994 | | | $ | 4,652 | |
Less after-tax adjustments:
| | | | |
Effect of consolidating FG VIEs
| |
(348
|
)
| |
(405
|
)
|
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives
| |
(988
|
)
| |
(498
|
)
|
Fair value gains (losses) on CCS
| |
23
| | |
35
| |
Unrealized gain (loss) on investment portfolio excluding foreign
exchange effect
| |
477
|
| |
319
|
|
Operating shareholders' equity | | 5,830 | | | 5,201 | |
After-tax adjustments:
| | | | |
Less: Deferred acquisition costs
| |
165
| | |
174
| |
Plus: Net present value of estimated net future credit derivative
revenue
| |
220
| | |
302
| |
Plus: Net unearned premium reserve on financial guaranty contracts
in excess of expected loss to be expensed
| |
3,266
|
| |
3,658
|
|
Adjusted book value | | $ | 9,151 |
| | $ | 8,987 |
|
| | | | | |
|
Shares outstanding at the end of the period
| |
194.0
| | |
182.2
| |
| | | | | |
|
Per share: | | | | |
Shareholders' equity
| |
$
|
25.74
| | |
$
|
25.52
| |
Operating shareholders' equity
| |
$
|
30.05
| | |
$
|
28.54
| |
Adjusted book value
| |
$
|
47.17
| | |
$
|
49.32
| |
|
__________________
1. Operating shareholders' equity and adjusted book value are non-GAAP
financial measures. See the "Explanation of Non-GAAP Financial Measures"
section of the press release.
Share Repurchase Program and Dividends
On January 18, 2013, the Company's Board of Directors authorized a $200
million share repurchase program. This repurchase program replaces the
prior authorization. In addition, on February 7, 2013, the Company
increased its 2013 quarterly dividend by 11% to $0.10 per share.
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, February 28, 2013.
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 1-888-317-6016 (in the U.S.) or 1-412-317-6016
(International). A replay of the call will be available through April
29, 2013. To listen to the replay, dial 1-877-344-7529 (in the U.S.) or
1-412-317-0088 (International), passcode 10024950. The replay will be
available one hour after the conference call ends.
Please refer to Assured Guaranty's December 31, 2012 Financial
Supplement, which is posted on the Company's website at assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd/financial-information,
for more information on the Company's financial guaranty portfolios,
investment portfolio and other items. The Company is also posting on the
same page of its website:
-
“Public Finance Transactions in 4Q 2012,” which lists the new issue
U.S. public finance transactions sold in fourth quarter 2012 that the
Company has insured, and
-
“Structured Finance Transactions at December 31, 2012,” which lists
the Company's structured finance exposure as of that date.
In addition, the Company is posting at assuredguaranty.com/presentations
the “December 31, 2012 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 and the links to those
documents will be furnished 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.
Assured Guaranty Ltd. |
Consolidated Statements of Operations (unaudited) |
(amounts in millions) |
|
|
|
| |
| Quarter Ended December 31, |
| Year Ended December 31, |
| | | | | 2012 |
| 2011 | | 2012 |
| 2011 |
Revenues: | | | | | | | | |
|
Net earned premiums
| |
$
|
218
| | |
$
|
225
| | |
$
|
853
| | |
$
|
920
| |
|
Net investment income
| |
103
| | |
101
| | |
404
| | |
396
| |
|
Net realized investment gains (losses)
| |
1
| | |
(5
|
)
| |
1
| | |
(18
|
)
|
|
Net change in fair value of credit derivatives:
| | | | | | | | |
| |
Realized gains (losses) and other settlements
| |
(30
|
)
| |
(19
|
)
| |
(108
|
)
| |
6
| |
| |
Net unrealized gains (losses)
| |
(89
|
)
| |
(276
|
)
| |
(477
|
)
| |
554
|
|
| | |
Net change in fair value of credit derivatives
| |
(119
|
)
| |
(295
|
)
| |
(585
|
)
| |
560
| |
|
Fair value gains (losses) on CCS
| |
(6
|
)
| |
32
| | |
(18
|
)
| |
35
| |
|
Fair value gains (losses) on FG VIEs
| |
36
| | |
22
| | |
210
| | |
(132
|
)
|
|
Other income
| |
(4
|
)
| |
(1
|
)
| |
108
|
| |
58
|
|
Total revenues | | 229 | | | 79 | | | 973 | | | 1,819 | |
| | | | | | | | | | |
|
Expenses | | | | | | | | |
|
Loss and LAE
| |
64
| | |
149
| | |
523
| | |
462
| |
|
Amortization of deferred acquisition costs
| |
0
| | |
4
| | |
14
| | |
17
| |
|
Interest expense
| |
21
| | |
25
| | |
92
| | |
99
| |
|
Other operating expenses
| |
49
|
| |
49
|
| |
212
|
| |
212
|
|
Total expenses | | 134 | | | 227 | | | 841 | | | 790 | |
| | | | |
| |
| |
| |
|
Income (loss) before income taxes | | 95 | | | (148 | ) | | 132 | | | 1,029 | |
Provision (benefit) for income taxes
| |
21
|
| |
(64
|
)
| |
22
|
| |
256
|
|
Net income (loss) | | 74 | | | (84 | ) | | 110 | | | 773 | |
Less after-tax adjustments:
| | | | | | | | |
|
Realized gains (losses) on investments
| |
1
| | |
(6
|
)
| |
(4
|
)
| |
(20
|
)
|
|
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives
| |
(92
|
)
| |
(265
|
)
| |
(486
|
)
| |
244
| |
|
Fair value gains (losses) on CCS
| |
(4
|
)
| |
21
| | |
(12
|
)
| |
23
| |
|
Foreign exchange gains (losses) on remeasurement of premiums
receivable and loss and LAE reserves
| |
1
| | |
(1
|
)
| |
15
| | |
(3
|
)
|
|
Effect of consolidating FG VIEs
| |
(16
|
)
| |
(5
|
)
| |
62
|
| |
(72
|
)
|
Operating income | | $ | 184 |
| | $ | 172 |
| | $ | 535 |
| | $ | 601 |
|
|
Assured Guaranty Ltd. |
Consolidated Balance Sheets |
(amounts in millions) |
|
|
| |
| |
| | | | | As of |
| | | | | December 31, 2012 |
| December 31, 2011 |
Assets | | | | |
|
Investment portfolio:
| | | | |
|
Fixed maturity securities, available-for-sale, at fair value
| |
$
|
10,056
| | |
$
|
10,142
|
|
Short-term investments, at fair value
| |
817
| | |
734
|
|
Other invested assets
| |
212
|
| |
223
|
Total investment portfolio
| |
11,085
| | |
11,099
|
| | | | | | |
|
|
Cash
| |
138
| | |
215
|
|
Premiums receivable, net of ceding commissions payable
| |
1,005
| | |
1,003
|
|
Ceded unearned premium reserve
| |
561
| | |
709
|
|
Deferred acquisition costs
| |
116
| | |
132
|
|
Reinsurance recoverable on unpaid losses
| |
58
| | |
69
|
|
Salvage and subrogation recoverable
| |
456
| | |
368
|
|
Credit derivative assets
| |
141
| | |
153
|
|
Deferred tax asset, net
| |
721
| | |
804
|
|
Current income tax receivable
| |
1
| | |
76
|
|
FG VIE assets, at fair value
| |
2,688
| | |
2,819
|
|
Other assets
| |
272
|
| |
262
|
Total assets | | $ | 17,242 |
| | $ | 17,709 |
| | | | | | |
|
Liabilities and shareholders' equity | | | | |
Liabilities | | | | |
|
Unearned premium reserve
| |
$
|
5,207
| | |
$
|
5,963
|
|
Loss and LAE reserve
| |
601
| | |
679
|
|
Reinsurance balances payable, net
| |
219
| | |
171
|
|
Long-term debt
| |
836
| | |
1,038
|
|
Credit derivative liabilities
| |
1,934
| | |
1,457
|
|
FG VIE liabilities with recourse, at fair value
| |
2,090
| | |
2,397
|
|
FG VIE liabilities without recourse, at fair value
| |
1,051
| | |
1,061
|
|
Other liabilities
| |
310
|
| |
291
|
Total Liabilities | | 12,248 | | | 13,057 |
| | | | | | |
|
Shareholders' equity | | | | |
|
Common stock
| |
2
| | |
2
|
|
Additional paid-in capital
| |
2,724
| | |
2,570
|
|
Retained earnings
| |
1,749
| | |
1,708
|
|
Accumulated other comprehensive income
| |
515
| | |
368
|
|
Deferred equity compensation
| |
4
|
| |
4
|
Total shareholders' equity | | 4,994 |
| | 4,652 |
Total liabilities and shareholders' equity | | $ | 17,242 |
| | $ | 17,709 |
Explanation of Non-GAAP Financial Measures:
The Company references financial measures that are not in accordance
with GAAP. Management and the board of directors utilize non-GAAP
measures in evaluating the Company's financial performance and as a
basis for determining senior management incentive compensation. By
providing these non-GAAP financial measures, investors, analysts and
financial news reporters have access to the same information that
management reviews internally. In addition, Assured Guaranty's
presentation of non-GAAP financial measures is consistent with how
analysts calculate their estimates of Assured Guaranty's financial
results in their research reports on Assured Guaranty and with how
investors, analysts and the financial news media evaluate Assured
Guaranty's financial results.
The following paragraphs define each non-GAAP financial measure and
describe why it is useful. A reconciliation of the non-GAAP financial
measure and the most directly comparable GAAP financial measure, if
available, is presented herein. Non-GAAP financial measures should not
be viewed as substitutes for their most directly comparable GAAP
measures.
Operating Income: Management believes that operating income is a
useful measure because it clarifies the understanding of the
underwriting results of the Company's financial guaranty insurance
business, and also includes financing costs and net investment income,
and enables investors and analysts to evaluate the Company's financial
results as compared with the consensus analyst estimates distributed
publicly by financial databases. Operating income is defined as net
income (loss) attributable to AGL, as reported under GAAP, adjusted for
the following:
1) Elimination of the after-tax 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. Trends in the underlying profitability of the Company's
business can be more clearly identified without the fluctuating effects
of these transactions.
2) Elimination of the after-tax non-credit-impairment unrealized fair
value gains (losses) on credit derivatives, which is the amount 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. Additionally, such
adjustments present all financial guaranty contracts on a more
consistent basis of accounting, whether or not they are subject to
derivative accounting rules.
3) Elimination of the after-tax fair value gains (losses) on the
Company's CCS. Such amounts 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.
4) Elimination of the after-tax foreign exchange gains (losses) on
remeasurement of net premium receivables and loss and LAE reserves.
Long-dated receivables constitute a significant portion of the net
premium receivable balance and represent the present value of future
contractual or expected collections. 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 effects of consolidating FG VIEs in order to
present all financial guaranty contracts on a more consistent basis of
accounting, whether or not GAAP requires consolidation. GAAP requires
the Company to consolidate certain VIEs that have issued debt
obligations insured by the Company even though the Company does not own
such VIEs.
Operating Shareholders' Equity: Management believes that
operating shareholders' equity is a useful measure because it presents
the equity of Assured Guaranty Ltd. with all financial guaranty
contracts accounted for on a more consistent basis and excludes fair
value adjustments that are not expected to result in economic loss. Many
investors, analysts and financial news reporters use operating
shareholders' equity as the principal financial measure for valuing
Assured Guaranty Ltd.'s current share price or projected share price and
also as the basis of their decision to recommend buying or selling
Assured Guaranty Ltd.'s common shares. Many of the Company's fixed
income investors also use operating shareholders' equity to evaluate the
Company's capital adequacy. Operating shareholders' equity is the basis
of the calculation of adjusted book value (see below). Operating
shareholders' equity is defined as shareholders' equity attributable to
AGL, as reported under GAAP, adjusted for the following:
1) Elimination of the effects of consolidating FG VIEs in order to
present all financial guaranty contracts on a more consistent basis of
accounting, whether or not GAAP requires consolidation. GAAP requires
the Company to consolidate certain VIEs that have issued debt
obligations insured by the Company even though the Company does not own
such VIEs.
2) Elimination of the after-tax non-credit-impairment unrealized fair
value gains (losses) on credit derivatives, which is the amount 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.
3) Elimination of the after-tax fair value gains (losses) on the
Company's CCS. Such amounts 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.
4) Elimination of the after-tax 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.
Adjusted Book Value: Management believes that 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 in addition to
operating shareholders' equity. The premiums and revenues included in
adjusted book value will be earned in future periods, but actual
earnings may differ materially from the estimated amounts used in
determining current adjusted book value due to changes in foreign
exchange rates, prepayment speeds, terminations, credit defaults and
other factors. Many investors, analysts and financial news reporters use
adjusted book value to evaluate Assured Guaranty Ltd.'s share price and
as the basis of their decision to recommend, buy or sell Assured
Guaranty Ltd. common shares. Adjusted book value is operating
shareholders' equity, as defined above, further adjusted for the
following:
1) Elimination of after-tax 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 after-tax net present value of estimated net future
credit derivative revenue. See below.
3) Addition of the after-tax value of the unearned premium reserve 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.
Net Present Value of Estimated Net Future Credit Derivative Revenue:
Management believes that this amount is a useful measure because it
enables an evaluation of the value of future estimated credit derivative
revenue. There is no corresponding GAAP financial measure.This
amount represents the present value of estimated future revenue from the
Company's credit derivative in-force book of business, net of
reinsurance, ceding commissions and premium taxes for contracts without
expected economic losses, and is discounted at 6%. Estimated net future
credit derivative 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 GAAP gross premiums written and the net credit
derivative premiums received and receivable portion of net realized
gains and other settlements on credit derivatives (“Credit Derivative
Revenues”) do not adequately measure. PVP in respect of financial
guaranty 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, in each case, discounted at 6%.
For purposes of the PVP calculation, management discounts estimated
future installment premiums on insurance contracts at 6%, while under
GAAP, these amounts 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
Revenues 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 PVP to Gross Written Premiums |
(amounts in millions) |
|
|
| |
| Quarter Ended December 31, |
| Year Ended December 31, |
| | | | 2012 |
| 2011 | | 2012 |
| 2011 |
| | | | | | | | | |
|
Total PVP | | $ | 69 | | | $ | 88 | | | $ | 210 | | | $ | 243 | |
|
Less: financial guaranty installment premium PVP
| |
33
|
| |
33
|
| |
45
|
| |
69
|
|
Total: financial guaranty upfront gross written premiums
| |
36
| | |
55
| | |
165
| | |
174
| |
|
Plus: financial guaranty installment gross written premiums1 | |
73
|
| |
45
|
| |
88
|
| |
(47
|
)
|
Total gross written premiums | | $ | 109 |
| | $ | 100 |
| | $ | 253 |
| | $ | 127 |
|
|
__________________
1. Represents present value of new business on installment policies plus
gross written premiums adjustment on existing installment policies due
to changes in assumptions and any cancellations of assumed reinsurance
contracts.
Statutory Basis Net Par Outstanding: Under statutory accounting,
the net par outstanding would be reduced both when an outstanding issue
is legally defeased (i.e., an issuer has legally discharged its
obligations with respect to a municipal security by satisfying
conditions set forth in defeasance provisions contained in transaction
documents and is no longer responsible for the payment of debt service
with respect to such obligations) and when such issue is economically
defeased (i.e., transaction documents for a municipal security do not
contain defeasance provisions but the issuer establishes an escrow
account with U.S. government securities in amounts sufficient to pay the
refunded bonds when due; the refunded bonds are not considered paid and
continue to be outstanding under the transaction documents and the
issuer remains responsible to pay debt service when due to the extent
monies on deposit in the escrow account are insufficient for such
purpose).
Qualified Statutory Capital: Qualified statutory capital is
calculated as the sum of statutory policyholders' surplus and statutory
contingency reserve.
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 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 a 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
Assured Guaranty or any of its subsidiaries and/or of transactions that
Assured Guaranty's subsidiaries have insured, developments in the
world's financial and capital markets that adversely affect the demand
for the Company's insurance, issuers' payment rates, Assured Guaranty's
loss experience, its exposure to refinancing risk in transactions (which
could result in substantial liquidity claims on its guaranties), its
access to capital, its unrealized (losses) gains on derivative financial
instruments or its investment returns, changes in the world's credit
markets, segments thereof or general economic conditions, the impact of
rating agency action with respect to sovereign debt and the resulting
effect on the value of securities in the Company's investment portfolio
and collateral posted by and to the Company, more severe or frequent
losses impacting the adequacy of Assured Guaranty's expected loss
estimates, the impact of market volatility on the mark-to-market of the
Company's contracts written in credit default swap form, reduction in
the amount of insurance opportunities available to the Company,
deterioration in the financial condition of the Company's reinsurers,
the amount and timing of reinsurance recoverables actually received, the
risk that reinsurers may dispute amounts owed to the Company under its
reinsurance agreements, failure of Company to realize insurance loss
recoveries or damages expected from originators, sellers, sponsors,
underwriters or servicers of residential mortgage-backed securities
transactions through loan putbacks, settlement negotiations or
litigation, the possibility that budget shortfalls or other factors will
result in credit losses or impairments on obligations of state and local
governments that the Company insures or reinsures, increased
competition, including from new entrants into the financial guaranty
industry, changes in accounting policies or practices, changes in laws
or regulations, other governmental actions, difficulties with the
execution of Assured Guaranty's business strategy, contract
cancellations, loss of key personnel, adverse technological
developments, the effects of mergers, acquisitions and divestitures,
natural or man-made catastrophes, other risks and uncertainties that
have not been identified at this time, management's response to these
factors, and other risk factors identified in Assured Guaranty's filings
with the Securities and Exchange Commission. Readers are cautioned not
to place undue reliance on these forward-looking statements. These
forward-looking statements are made as of February 27, 2013, and Assured
Guaranty undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
Contacts:
Assured Guaranty Ltd.
Robert Tucker, 212-339-0861
Managing
Director, Investor Relations and Corporate Communications
rtucker@assuredguaranty.com
or
Ashweeta
Durani, 212-408-6042
Vice President, Corporate Communications
adurani@assuredguaranty.com
Source: Assured Guaranty Ltd.
© 2018 Canjex Publishing Ltd. All rights reserved.