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Assured Guaranty Ltd. (



Q4 2011 Earnings Conference Call

February 29, 2012 7:30 AM ET


Robert Tucker – Managing Director of Investor Relations and Corporate Communications

Dominic Frederico – President & Chief Executive Officer

Rob Bailenson – Chief Financial Officer


Mark Palmer – BTIG

Brian Meredith – UBS

Geoffrey Dunn – Dowling & Partners

Larry Vitale – Moore Capital

Matthew Howlett – Macquarie

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Shobha Frey – Putnam Investments

Andrew Kleinberg – Glickenhaus



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Good morning and welcome to the Assured Guaranty Limited fourth quarter 2011 earnings conference call and webcast. All participants will be in listen-only mode. (Operator instructions) After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Tucker, Managing Director of Investor Relations and Corporate Communications. Mr. Tucker, please go ahead.

Robert Tucker

Thank you. Good morning and thank you for joining Assured Guaranty for our fourth quarter 2011 financial results conference call. Today’s presentation is made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. It may contain forward-looking statements about our new business and credit outlooks, market conditions, credit spreads, financial ratings, loss reserves, financial results, future reps and warranty settlement agreements or other items that may affect our future results.

These statements are subject to change due to new information or future events, therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them, except as required by law.

If you are listening to a replay of this call or if you are reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our Website for our recent presentations, SEC filings, most current financial filings, and for the risk factors.

And turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited; and Rob Bailenson, our Chief Financial Officer. At the end of this or at the end of their presentation, we will open up the call to your questions.

As the webcast is not enabled for Q&A, please dial into the call if you would like to ask a question. I would now turn the call over to Dominic.

Dominic Frederico

Thank you, Robert and thanks to all of you for your interest in and support of Assured Guaranty. In 2011, we earned near-record full-year operating income of $604 million and continued our steady growth in adjusted book value per share, which reached a new year-end high of $49.32. We successfully addressed new rating criteria from S&P by focusing on capital enhancement strategies that did not include raising common equity.

Overall, we are very pleased with the results we achieved during the year filled with challenges from the housing market, the U.S. economy, eurozone troubles, and rating agency pressures. We also continued to benefit from the success of our RMBS, rep and warranty loss mitigation efforts. And finally, we took steps to further enhance shareholder value, including buying back 2 million shares at an average price of $11.66 per share, and in the first quarter of 2012, we doubled our quarterly dividend to $0.09 per common share starting in March of 2012.

In terms of business production, our full-year PVP was $243 million. And while this fell short of what we thought we could achieve at the beginning of the year, when we were rated AA plus stable by S&P, we view our origination results as encouraging in light of the significant obstacles we encountered, which also included the lowest U.S. municipal issuance in 10 years and the slow pace of recovery for the international, infrastructure and structured finance markets.

In addition to our $243 million of PVP we created additional economic shareholder value by executing well-planned alternative strategies. By purchasing $856 million of par of our uninsured securities at an average price of 49% of the par, we eliminated $320 million of expected loss and embedded future earnings of $103.2 million, which we will receive as a collateral phase down. We also collected over $1 billion of previously paid losses to our rep and warranty recovery process from originators of faulty mortgage loans. And finally, we added $34.5 million of unearned premium and commutation gains from the recapture of previously reinsured business.

One further note on earnings is that our operating income of $604 million was negatively impacted by a change of approximately $130 million due solely to a decline in the risk-free interest rate that are used in GAAP to calculate the present value of future loss. The change in that rate and the corresponding impact to an income does not relate to any credit deterioration in the performance of our insured portfolio. Our 2011 business production did demonstrate a fundamental demand for municipal bond insurance where we guaranteed 1,228 new municipal bond issues or over 12% or one out of almost every eight municipal issues sold during the year.

Our total par insured amount was $15.2 billion. We believe this is a strong showing, considering the uncertainties surrounding our ratings during much of 2011 and the 34% decline in new issuance volume. Even at these levels of production, we estimate that our insurance saved issuers as much as $150 million in present value of financing costs.

Looking closer at new business, in 2011, almost 80% of the U.S. public finance par we insured came from transactions in our principal target market, which is issues of single A underlying credit quality, where we guaranteed 38% of the transaction sold and 16% of the par issued in this rating category. While most of our recent new business originations have been in the U.S. municipal market, we saw increasing opportunities in the international and structured finance areas. We are pleased that our U.S. municipal, international infrastructure and structured finance businesses all made meaningful contributions to our productions in the fourth quarter.

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