Assured Guaranty's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Assured Guaranty Limited (AGO)

Q1 2012 Earnings Call

May 11, 2012 7:00 AM ET


Robert Tucker – Managing Director, IR and Corporate Communications

Dominic Frederico – President and CEO

Rob Bailenson – CFO


Geoffrey Dunn – Dowling & Partners

Brian Meredith – UBS

Matt Howlett – Macquarie

John Helmers – Swiftwater Capital

Andrew Kleinberg – Glickenhaus

Frank Danley – Dolton Partners



Good day, and welcome to the Assured Guaranty Limited First Quarter 2012 Earnings Conference Call and Webcast. (Operator Instructions).

I would now like to turn the conference over to Robert Tucker, Please go ahead, sir.

Robert Tucker

Good morning and thank you for joining Assured Guaranty for our First Quarter 2012 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 rep and warranty settlement agreements and 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’re listening to the replay of this call or if you’re 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.

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. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you’d like to ask a question.

I will now turn the call over to Dominic.

Dominic Frederico

Thank you, Robert, and thank you all for joining Assured Guaranty for our first quarter 2012 earnings call. During the quarter, once again Assured Guaranty delivered positive operating results in a tough macroeconomic environment. We have done this consistently during both the recession and choppy recovery through a successful combination of running new business and executing alternative strategies to create shareholder and policyholder value.

I am also pleased to announce that is one of the main components of those alternative strategies, we have finalized a settlement with Deutsche Bank that I had alluded to on our prior call. Deutsche Bank is the second major financial institution that we have settled within a little more than a year. This agreement further strengthens our balance sheet by providing a substantial cash payment and provide certainty related to RBS developments due to a loss sharing arrangement on future claims.

With this agreement, we have now reached favorable settlements with respect to approximately 37% of the remaining par outstanding of our troubled obligations and Assured Guaranty’s legacy residential, mortgage, insured portfolio. A critical statistic relative to our capital adequacy or financial strength, which should have a significant positive impact for Moody’s and S&P’s rating evaluations.

Two other prominent alternative strategic events occurred in the first quarter. First, we completed our transaction with Radian Asset Assurance in which we reassumed $12.9 billion of par previously ceded to Radian, assumed an additional $1.8 billion of par of Radian Direct Public Finance exposures and agreed to acquire the bond insurance company, Municipal and Infrastructure Assurance Corporation which gives us additional flexibility to respond to future challenges or opportunities in the financial guarantee industry.

And in other similar transaction, we reassumed $6.2 billion of par of insured public finance business from Tokio Marine. These two transactions captured $20.9 billion of par insured and an amount equal to 124% of our 2011 production, a remarkable result that significantly mitigates the impact of reduced new business activity in the current market.

In terms of our new business production, total first quarter 2012 PVP increased 7% over that of the first quarter of 2011. And looking at our public finance activities, including the business assumed in the Radian transaction, PVP increased by 54%. Further, we materially increased the total municipal par amount we assured in the first quarter of this year versus last year’s comparable quarter, up 118% when including the direct assumed par in the Radian transaction and up 37% excluding the Radian assumption.

In the municipal new issue market, we insured 12% of all new municipal transactions and 5% of the par sold during the first quarter of 2012. More importantly, in our target market, which is new U.S. municipal issues of single-A underlying credit quality, we insured 37% of the transactions sold and 18% of the par sold in the quarter, both of which are higher levels than in the first quarter of last year.

These results confirm the continuing fundamental demand for bond insurance and we accomplish them with continued downward pressure on our ratings, average yields at all time lows, and tight credit spreads.

Additionally, current market conditions have created an environment remaining investors are unwilling to give up even the slight amount of yield and therefore our foregoing insurance, while at the same time issuers are still able to borrow at a historical – a historic low rates. Despite these pressures, we continue to maintain new issue premium rates in line with those of a year ago, while improving the average credit quality of our new direct originations insured from A minus to single A flat.

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