Assured Guaranty Ltd. (AGO)

AGO 
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Assured Guaranty (AGO)

Q4 2012 Earnings Call

February 28, 2013 8:00 am ET

Executives

Robert S. Tucker - Managing Director of Investor Relations and Corporate Communications

Dominic J. Frederico - Chief Executive Officer, President and Director

Robert A. Bailenson - Chief Financial Officer, Chief Accounting Officer and Managing Director

Analysts

Mark Palmer - BTIG, LLC, Research Division

Jasper Burch - Macquarie Research

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

William Clark - Keefe, Bruyette, & Woods, Inc., Research Division

Josh H. Bederman - Pyrrho Capital Management, LP

Robert Frank Maton - Schneider Capital Management Corporation

Marie Lunackova - UBS Investment Bank, Research Division

Sean Dargan - Wells Fargo Securities, LLC, Research Division

Darren Marcus - MKM Partners LLC, Research Division

Presentation

Operator

Good morning, and welcome to the Assured Guaranty Ltd. Fourth Quarter 2012 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Robert Tucker, Managing Director, Investor Relations, Corporate Communication. Mr. Tucker, please go ahead.

Robert S. Tucker

Thank you, operator. Good morning, and thank you for joining Assured Guaranty for our fourth quarter 2012 financial results conference call. Today's presentation is made pursuant to the Safe Harbor provision 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, 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're listening to a 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.

And turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd.; 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 J. Frederico

Thank you, Robert, and thank you all for your continued support of Assured Guaranty and for joining us on today's fourth quarter earnings call. I'm pleased to report that 2012 was another solid year for Assured Guaranty. Once again, we succeeded by executing our core strategies, which have consistently produced positive operating earnings and continued to great shareholder value.

These strategies led to significant accomplishments in 2012. Specifically, we generated $535 million of operating income, our third year in a row with operating income in excess of $500 million. We increased operating shareholders' equity per share to a record level of $30.05. We repurchased 2.1 million shares at an average price of $11.76 and the share price ended the year 21% higher at $14.23, and as of yesterday's close, it was 57% higher.

We doubled our quarterly dividend to $0.09 per share early in the year, and further raised it to $0.10 per share in the first quarter of 2013 for a total increase of 122%.

We executed reassumption transactions with Radian Asset Assurance and with Tokio Marine and Nichido Fire Insurance Co. for a total economic benefit of $191 million. We produced a total of $210 million of PVP, ensuring $16.8 billion of par direct and reinsured transactions. We accomplished this in a persistently unfavorable business environment caused by unprecedented low interest rates, tight credit spreads and uncertainty about our ratings caused by Moody's having us on review for 3 quarters of the year. And we did it while consistently maintaining our rigorous underwriting and pricing standards.

In the U.S. public finance market, we ensured 1,770 new issues and secondary market positions during the year, representing $14.5 billion in par. Our penetration of new issues in our targeted market of single-A issuers was 30% of the transaction sold and 12% of parcel during the year.

We also guaranteed $620 million of par and structured finance, which contributed $43 million of PVP.

In our residential mortgage loss mitigation efforts, we caused providers of representations and warranties, or R&W, to pay or agree to pay approximately $500 million, including amounts related to 2 new R&W agreement signed during the year. This brings the total receipts and commitments from R&W providers to $2.9 billion to-date.

We also purchased $396 million of bonds we had previously insured at an average cost of 63% of the par, which created approximately $250 million of future economic value. Such ramp-on purchases mitigate losses, improve our excess capital position, and increase future investment income.

We agreed to terminate 53 policies totaling $4.1 billion of net par outstanding, while still collecting 96% of the expected premiums, further increasing our excess capital.

We experienced improvement in our insured portfolio, as structured financing transaction amortized and our overall below investment grade exposure decreased by 13% during the year.

Finally, we lowered our insured leverage with the ratio statutory net par outstanding to qualified statutory capital declining 12%. Since the acquisition of AGM in 2009, that ratio has fallen by 41%.

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