GAAP Highlights:
Net income attributable to Assured Guaranty Ltd. was $81 million, or $1.34 per share(1), for first quarter 2023.
Shareholders’ equity attributable to Assured Guaranty Ltd. per share was $88.07 as of March 31, 2023.
Non-GAAP Highlights:
Adjusted operating income(2) was $68 million, or $1.12 per share, for first quarter 2023.
Adjusted operating shareholders’ equity(2) per share and adjusted book value (ABV)(2) per share were $94.58 and $143.04, respectively, as of March 31, 2023.
Return of Capital to Shareholders:
First quarter 2023 dividends were $18 million.
Insurance Segment:
Insurance segment adjusted operating income was $117 million for first quarter 2023.
Gross written premiums (GWP) were $86 million for first quarter 2023.
Present value of new business production (PVP)(2) was $112 million for first quarter 2023.
Asset Management Segment:
Asset Management segment adjusted operating loss was $1 million for first quarter 2023.
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 March 31, 2023 (first quarter 2023).
“Assured Guaranty’s diversified financial guaranty strategy led to impressive new business production in the first quarter of 2023,” said Dominic Frederico, President and CEO. “Gross written premium of $86 million was 23% higher than in the first quarter of 2022 and 59% higher than the average for the previous 10 first quarters. In terms of PVP, it was our most successful first quarter in over a decade. We closed $112 million of PVP in the quarter, up 62% from first quarter 2022 and approximately double the PVP average for the previous 10 first quarters.
“We benefited from a strong start to the year for both global structured finance, where we achieved our best GWP and PVP results in more than a decade, and international infrastructure, where we more than doubled the first quarter 2022 results for both GWP and PVP. In U.S. public finance, we guaranteed 60% of insured municipal bonds’ par issued in the first quarter.
“And, significantly, on April 5, we reached an agreement with Sound Point Capital Management that, when implemented, is expected to advance our strategic objectives in the asset management sector.”
(1)
Per share information for net income and adjusted operating income is based on diluted shares.
(2)
Please see “Explanation of Non-GAAP Financial Measures.”
Summary Financial Results
(in millions, except per share amounts)
Quarter Ended
March 31,
2023
2022
GAAP (1)
Net income (loss) attributable to AGL
$
81
$
66
Net income (loss) attributable to AGL per diluted share
$
1.34
$
0.98
Weighted average diluted shares
60.4
67.4
Non-GAAP
Adjusted operating income (loss) (2)
$
68
$
90
Adjusted operating income per diluted share (2)
$
1.12
$
1.34
Weighted average diluted shares
60.4
67.4
Gain (loss) related to FG VIE and CIV consolidation (3) included in adjusted operating income
$
(4
)
$
(10
)
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share
$
(0.06
)
$
(0.14
)
Components of total adjusted operating income (loss)
Insurance segment
$
117
$
133
Asset Management segment
(1
)
—
Corporate division
(44
)
(33
)
Other
(4
)
(10
)
Adjusted operating income (loss)
$
68
$
90
As of
March 31, 2023
December 31, 2022
Amount
Per Share
Amount
Per Share
Shareholders’ equity attributable to AGL
$
5,220
$
88.07
$
5,064
$
85.80
Adjusted operating shareholders’ equity (2)
5,606
94.58
5,543
93.92
ABV (2)
8,478
143.04
8,379
141.98
Common Shares Outstanding (4)
59.3
59.0
(1)
Generally accepted accounting principles in the United States of America.
(2)
Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release.
(3)
The effect of consolidating financial guaranty (FG) variable interest entities (VIEs) (FG VIEs) and consolidated investment vehicles (CIVs).
(4)
The increase in shares is due to vesting of share-based compensation.
On a per share basis, shareholders’ equity attributable to AGL increased to $88.07 as of March 31, 2023 from $85.80 as of December 31, 2022, primarily due to net income and unrealized gains on the investment portfolio during first quarter 2023. On a per share basis, adjusted operating shareholders’ equity increased to $94.58 as of March 31, 2023, from $93.92 as of December 31, 2022, primarily due to operating income in first quarter 2023, and ABV increased to $143.04 as of March 31, 2023 from $141.98 as of December 31, 2022, primarily due to new business production.
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
March 31,
2023
2022
Segment revenues
Net earned premiums and credit derivative revenues
$
84
$
219
Net investment income
82
63
Fair value gains (losses) on trading securities
(2
)
(4
)
Foreign exchange gains (losses) on remeasurement and other income (loss)
26
—
Total segment revenues
190
278
Segment expenses
Loss expense (benefit)
9
60
Interest expense
—
1
Amortization of deferred acquisition costs (DAC)
3
4
Employee compensation and benefit expenses
39
38
Other operating expenses
28
19
Total segment expenses
79
122
Equity in earnings (losses) of investees
30
(1
)
Segment adjusted operating income (loss) before income taxes
141
155
Less: Provision (benefit) for income taxes
24
22
Segment adjusted operating income (loss)
$
117
$
133
Insurance segment adjusted operating income was $117 million in first quarter 2023, compared with $133 million in the three-month period ended March 31, 2022 (first quarter 2022). The variance was primarily due to a benefit in first quarter 2022 of $63 million (after-tax) associated with the resolution of general obligation bonds of the Commonwealth of Puerto Rico and obligations of its related authorities and public corporations, the Public Buildings Authority, the Convention Center District Authority and the Infrastructure Financing Authority under the Puerto Rico Oversight, Management, and Economic Stability Act (March 2022 Puerto Rico Resolutions). This benefit consisted of premium accelerations, offset in part by the recognition of loss expense that was previously embedded in unearned premium reserve. In first quarter 2023, the Company reported larger gains on alternative investments, higher net investment income and the release of a litigation accrual (reported in “other income (loss)”). The components of premiums, losses and income from the investment portfolio are presented below.
Insurance Segment Net Earned Premiums and Credit Derivative Revenues
Insurance Segment
Net Earned Premiums and Credit Derivative Revenues
(in millions)
Quarter Ended
March 31,
2023
2022
Scheduled net earned premiums and credit derivative revenues
$
80
$
89
Accelerations – Puerto Rico
—
104
Accelerations – other
4
26
Total
$
84
$
219
Net earned premiums and credit derivative revenues in first quarter 2023 were lower than in first quarter 2022 primarily due to lower accelerations. The largest component of accelerations in first quarter 2022 was attributable to the March 2022 Puerto Rico Resolutions, which extinguished $1.3 billion of Puerto Rico insured net par.
Insurance Segment Loss Expense (Benefit) and the Rollforward of Expected Losses
Loss expense is a function of economic loss development (benefit), as well as the amortization of deferred premium revenue.
Insurance Segment
Loss Expense (Benefit)
(in millions)
Quarter Ended
March 31,
2023
2022
Public finance
$
1
$
55
U.S. residential mortgage-backed securities (RMBS)
6
6
Other structured finance
2
(1
)
Total
$
9
$
60
The table below presents the rollforward of expected losses for first quarter 2023.
Roll Forward of Net Expected Loss to be Paid (Recovered) (1)
(in millions)
Net Expected
Loss to be Paid
(Recovered) as of
December 31, 2022
Economic Loss
Development
(Benefit)
Net (Paid)
Recovered
Losses
Net Expected
Loss to be Paid
(Recovered) as of
March 31, 2023
Public finance
$
412
$
5
$
(24
)
$
393
U.S. RMBS
66
5
11
82
Other structured finance
44
1
(3
)
42
Total
$
522
$
11
$
(16
)
$
517
(1)
Economic loss development (benefit) 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, regardless of the accounting model prescribed under GAAP and without consideration of deferred premium revenue.
The economic loss development in first quarter 2023 of $11 million was mainly attributable to the effect of lower risk-free rates used to discount expected losses of $10 million.
Insurance Segment Income from Investment Portfolio
Insurance Segment
Income from Investment Portfolio
(in millions)
Quarter Ended
March 31,
2023
2022
Net investment income
$
82
$
63
Fair value gains (losses) on trading securities (1)
(2
)
(4
)
Equity in earnings (losses) of investees:
AssuredIM Funds (2)
28
11
Other alternative investments
2
(12
)
Total
$
110
$
58
(1)
Contingent value instruments (CVIs) issued by Puerto Rico are classified as trading securities with changes in fair value reported in the condensed consolidated statements of operations.
(2)
Funds managed by Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM).
Net investment income, which represents interest income on fixed-maturity debt securities and short-term investments, was higher in first quarter 2023 compared to first quarter 2022 primarily due to higher short-term interest rates and higher average balances in short-term investments, as well as higher income on floating rate assets in the available-for-sale investment portfolio.
In the Insurance segment, investments in AssuredIM Funds are recorded at net asset value (NAV), with the change in NAV reported in “equity in earnings (losses) of investees.” The increase in equity in earnings of AssuredIM Funds in first quarter 2023 compared with first quarter 2022 was primarily attributable to higher valuations of assets held in the collateralized loan obligation (CLO) and healthcare funds. As of March 31, 2023, the Insurance segment had invested $396 million (based on NAV) in AssuredIM Funds, and inception-to-date realized and unrealized gains on AssuredIM Funds totaled $187 million.
Equity in earnings of investees is more volatile than net investment income on fixed-maturity securities and short-term 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.
Insurance Segment New Business Production
Insurance Segment
New Business Production
(in millions)
Quarter Ended March 31,
2023
2022
GWP
PVP (1)
Gross Par
Written (1)
GWP
PVP (1)
Gross Par
Written (1)
Public finance – U.S.
$
22
$
22
$
2,907
$
49
$
49
$
3,931
Public finance – non-U.S.
36
30
360
16
12
223
Structured finance – U.S.
28
27
582
5
2
60
Structured finance – non-U.S.
—
33
1,514
—
6
257
Total
$
86
$
112
$
5,363
$
70
$
69
$
4,471
(1)
PVP, a non-GAAP financial measure, measures the value of the Insurance segment’s new business production for all contracts regardless of form or GAAP accounting model. See “Explanation of Non-GAAP Financial Measures” at the end of this press release. PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. The maximum potential exposure under a financial guaranty (not accounted for as insurance) is included in non-U.S. structured finance for both periods.
In first quarter 2023, structured finance GWP was over five times the amount of GWP in first quarter 2022, and PVP was over seven times the amount of PVP in first quarter 2022. First quarter 2023 structured finance GWP primarily includes a large insurance securitization transaction. Structured finance PVP in first quarter 2023 included the insurance securitization, as well as an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties for which no GWP was reported under GAAP because it is not accounted for as insurance. The average internal rating of structured finance new business production in first quarter 2023 was AA-.
In first quarter 2023, non-U.S. public finance GWP and PVP were more than double the GWP and PVP in first quarter 2022. In first quarter 2023, new business primarily included the guaranty of a long-term sale and leaseback transaction with Glasgow City Council and several regulated utility transactions. The average internal rating of non-U.S. public finance new business production was A in first quarter 2023.
U.S. public finance GWP and PVP in first quarter 2023 were lower than the comparable GWP and PVP in first quarter …
