Assured Guaranty Ltd. (AGO)

AGO 
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Assured Guaranty Ltd. (AGO)

F3Q08 Earnings Call

November 6, 2008 6:00 pm ET

Executives

Sabra Purtill - Managing Director, Investor Relations

Dominic Frederico - President and Chief Executive Officer

Bob Mills - Chief Financial Officer

Analysts

Andrew Wessel – JP Morgan

Joseph Marino – Piper Jaffray

Mark Lane – William Blair & Company

Brian Meredith – UBS

Presentation

Operator

(Operator Instructions) Welcome to the Assured Guaranty Third Quarter Earnings Conference Call. I would now like to turn the call over to Sabra Purtill, Managing Director, Investor Relations.

Sabra Purtill

Thank you all for joining us this evening for Assured Guaranty’s third quarter 2008 earnings conference call. We appreciate your interest in Assured Guaranty and hope that the change in our call time didn’t cause you too much inconvenience. We believe that this might be a more convenient time for some of our investors and analysts particularly those located in the Central and Western portions of the US.

Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited and Bob Mills, Chief Financial Officer. After their prepared remarks, they will take questions from the audience. Please note that our call is not web enabled for Q&A, so if you would like to ask a questions please dial our conference call organizer at 1-800-591-6945 and join the call live in order to ask a question.

I would remind you that management’s comments today or responses to questions today may contain forward-looking statements such as statements relating to our business outlook, growth prospects, market conditions, credit spreads, ratings, loss reserves, and other items where our outlook is subject to change. Listeners are cautioned not to place undue reliance on the forward-looking statements made on this conference call today as management does not undertake to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

You should refer to the Investor Information section of our website and to our most recent SEC filings for the most current financial information and for more information on factors that could affect our future financial results and forward looking statements.

I’ll now like to turn the call over to Dominic.

Dominic Frederico

Thanks all of you for your interest and participation in our third quarter earnings call. The last quarter was a continuation of a series of challenging quarters that Assured has had to navigate. Given this environment I believe our earnings, production, and credit performance were fair although obviously disappointing to us. In particular the credit and liquidity concerns and the global financial market have increased the uncertainty surrounding the future performance of our RMBS portfolio and some other exposures.

This uncertainty leads us to proactively establish loss reserves that take into account an increasingly stressed economic environment in 2008 and 2009. I think it’s important to keep in mind, however, that throughout these difficult times Assured has maintained operating profitability as well as its presence in the market as one of the few highly rated viable options for issuers and income investors. The company’s well established underwriting and risk management principles have protected us from the credit losses that have impaired the market presence and balance sheets of many other financial institutions.

There’s not a day that goes by that I’m not thankful for our decision not to underwrite CDO’s of ABS or other risky securities. Furthermore, our decision not to expand into business lines within embedded liquidity risks such as financial products or guaranteed investment contracts has protected us from further threats to our ratings and franchise.

As you are well aware, several financial guarantors are facing liquidity challenges due to their need to collateralize investment agreements or obligations due to their own rating downgrades and the decline in market value on the assets representing the collateral supporting the debt.

In spite of our many good decisions we are not immune to the fallout from the worst credit crisis to face this country and the world since the great depression. Our principle concern remains our RMBS exposures where we have long been cautious due to the deterioration and underwriting standards that we began to see in 2004.

Much of the early mortgage problems that emerged in 2007 could be attributed to poor underwriting by mortgage originators, inflated housing values, inappropriate loan products, and real estate speculation. We believe that we were quick to identify those risks in our own portfolio as we began talking to investors more than a year ago about the problems in the Heloc sector ahead of our financial guarantee counterparts.

Today we are looking at more traditional sources of housing losses; unemployment and declining household incomes combined with lower consumer confidence. Our revised assumptions resulted in a downgrade of some real estate exposures thereby triggering additional portfolio reserves. It is important to note that these additional reserves that were generated are still well within the rating agency stress case assumptions for our portfolio.

While it’s uncertain how much longer we will continue to see loss reserve development on the mortgage portfolio what I can be certain of is Assured’s conservative underwriting approach to the US RMBS market in 2005 to 2007 provides a natural cap to the potential losses that this asset class will generate. I remain confident in our ability to weather the mortgage market problems with our franchising tact given our lack of CDO’s of ABS our limited RMBS exposures and the generally high attachment point and contractual terms that we achieve.

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