Name: ASSURED GUARANTY LTD Q1 2017 Earnings Call
Start: 2025-11-20 10:22:58.812481+00

Executive Summary

Strong Q1 2017 driven by MBIA UK acquisition and loss mitigation; GAAP EPS $2.49 and operating EPS $2.14, with total revenues $527M, up sequentially and year over year .
Significant one-time items: $58M bargain purchase gain and $73M commutation gain; fair value gains on credit derivatives of $54M; these boosted results and raise volatility considerations .
New business momentum: PVP $99M and GWP $111M, highest since 2010, with $4.69B gross par written (U.S. municipal and UK infrastructure) .
Management expects 2017 share repurchases to exceed 2016, “closer to the $500M+ levels of 2014 and 2015,” a potential stock-support catalyst given capital strength (claims-paying resources $12.09B) .
Puerto Rico: increased expected losses ($47M economic loss) offset by litigation settlement benefits; Title III filing sets up prolonged litigation path; company is assertively defending creditor rights .

What Went Well and What Went Wrong

What Went Well

Record book value metrics and strong operating profit: “Operating income of $273M… non-GAAP operating shareholders’ equity per share $52.51 and… adjusted book value per share $71.51 reached new highs” .
International momentum: “We are clearly seeing renewed demand for our guaranty in the U.K.… our U.K. office issued a guaranty for an oversubscribed GBP 261M 20-year… St. James Hospital in Leeds. This was our largest U.K. transaction since 2008” .
U.S. municipal leadership and secondary demand: “Assured Guaranty increased its share of the total insured par sold to 57%… $711M of secondary market par… nearly double [prior year]” .

What Went Wrong

Loss development tied to Puerto Rico: Q1 economic loss of $47M “primarily related to an increase in Puerto Rico expected losses,” partially offset by litigation settlement benefits .
Lower net earned premiums vs prior periods due to fewer refundings/terminations: $164M in Q1 2017 vs $236M in Q4 2016 and $183M in Q1 2016; accelerated premiums fell to $58M vs $89M in Q1 2016 .
Title III uncertainty increases duration and litigation intensity: “The Commonwealth… filed for protection under Title III… We promptly filed an adversarial complaint… [this] locks you in to a very long series [like bankruptcy]” .

Financial Results

Metric	Q3 2016	Q4 2016	Q1 2017
Total Revenues ($MM)	$566	$470	$527
Net Income ($MM)	$479	$197	$317
GAAP Diluted EPS ($)	$3.60	$1.49	$2.49
Operating Diluted EPS ($, non-GAAP)	$3.83	$1.05	$2.14
Net Earned Premiums ($MM)	$231	$236	$164
Net Income Margin (%)	84.6% (479/566)	41.9% (197/470)	60.2% (317/527)
Fair Value Gain on Credit Derivatives ($MM)	$21	$74	$54
Bargain Purchase Gain ($MM)	$259	$0	$58
Other Income ($MM)	$(3)	$(10)	$89

Segment-like revenue components (composition):

Revenue Component ($MM)	Q3 2016	Q4 2016	Q1 2017
Net Earned Premiums	$231	$236	$164
Net Investment Income	$94	$117	$122
Net Realized Investment Gains (Losses)	$(2)	$(24)	$32
Net Chg FV Credit Derivatives	$21	$74	$54
FV Gains (Losses) on CCS	$(23)	$50	$(2)
FV Gains (Losses) on FG VIEs	$(11)	$27	$10
Bargain Purchase Gain	$259	$—	$58
Other Income (Loss)	$(3)	$(10)	$89
Total Revenues	$566	$470	$527

Key KPIs and balance metrics:

KPI / Balance Metric	Q3 2016	Q4 2016	Q1 2017
PVP ($MM)	$50	$85	$99
GWP ($MM)	$16	$83	$111
Gross Par Written ($MM)	$4,687	$5,643	$4,691
Net Par Outstanding ($MM)	$315,325	$296,318	$298,243
Claims-Paying Resources ($MM)	$12,052	$11,701	$12,092
Operating Shareholders’ Equity / Share ($)	$49.29	$49.89	$52.51
Adjusted Book Value / Share ($)	$66.34	$66.46	$71.51
Share Repurchases ($MM)	$55 in Q3; $210 YTD (to Nov. 3, 2016)	$306 FY16; $142 YTD (to Feb. 23, 2017)	$216 (Q1) + $53 (Apr–May 4) = $269 YTD

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Share Repurchases	FY 2017	FY 2016 actual: $306M	“Repurchase more… closer to the $500M+ levels of 2014 and 2015”	Raised (informal commentary)
Effective Tax Rate on Operating Income	Near-term	Q4 2016: 26.6%	Q1 2017: 11% aggregate; 13% excluding bargain gain	Lower (driven by mix and non-taxable gains)

No formal revenue/margin/OpEx guidance was provided in Q1 2017 materials .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2016)	Previous Mentions (Q4 2016)	Current Period (Q1 2017)	Trend
International/UK infrastructure	CIFG acquisition; pipeline commentary; ratings affirmed	Non-GAAP methodology update; continued momentum	Largest UK deal since 2008 (Leeds St. James); $40M international PVP	Strengthening
U.S. municipal leadership & secondary market	Majority of insured par; PVP +22% YoY	Industry-leading originations; robust accelerations	57% share of insured par; $711M secondary par; 180+ issues	Strengthening
Capital management (buybacks)	$55M repurchases in Q3; added $250M authorization	$306M FY16; $300M added Feb 2017	Expect >$500M in 2017; $269M YTD by May 4	Increasing
M&A/portfolio acquisitions	CIFG bargain gain $259M	Non-GAAP change; portfolio strength	MBIA UK acquisition; commutation benefit ($73M pre-tax)	Active
Puerto Rico developments	Reserve increases; clawback challenges	Economic loss +$102M in Q4 (discount rate benefit)	Title III filing; adversarial complaint; PREPA RSA path	Elevated legal focus
Structured finance (aviation/life)	Triple-X capital relief transaction	Structured finance contributions modest	Aviation finance, insurance reserve financing; mandates ongoing	Pipeline building

Management Commentary

Dominic Frederico, CEO: “Assured Guaranty began 2017 with a truly great first quarter… Operating income of $273M… PVP totaled $99M, the highest quarterly PVP since Q4 2010” .
On UK momentum: “We are clearly seeing renewed demand for our guaranty in the U.K.… our largest U.K. transaction since 2008” .
On Puerto Rico: “We promptly filed an adversarial complaint… let’s bring it on… we are confident in our rights… having a constitutional judge is really positive” .
Robert Bailenson, CFO: “The MBIA UK acquisition… generated approximately $61M of operating income or $0.48 per share… increase in net investment income… nonrecurring accretion related to the Zohar II notes used to fund the MBIA UK acquisition” .
On buybacks: “We expect to repurchase more common shares in 2017 than we did last year, closer to the $500M+ levels of 2014 and 2015” .

Q&A Highlights

Puerto Rico Title III and creditor rights: Management emphasized constitutional priority and readiness for litigation; sees federal judge oversight as constructive for enforcing lawful priorities .
PREPA RSA: “We’re positive on the RSA… it resolves roughly $9B of exposure… expecting effectiveness towards the end of this year” (subject to certifications) .
EPS trajectory question: Caution on forecasting; Q1 benefited from MBIA UK acquisition and reassumption; timing of future deals uncertain .
M&A outlook: Active dialogues; potential for consolidation of legacy guarantors as challenges (e.g., Puerto Rico) stress portfolios; tax reform could catalyze activity by diminishing NOL value .

Estimates Context

Wall Street consensus via S&P Global for Q1 2017 EPS and revenue was unavailable due to retrieval limits at the time of this analysis. As a result, we cannot benchmark the quarter to consensus and cannot designate formal beats/misses. Given large non-recurring gains (bargain purchase, commutation) and fair value volatility, analysts may adjust models to emphasize non-GAAP operating trends and new business momentum .

Key Takeaways for Investors

Q1 quality and momentum: Strong operating earnings with record book values and robust new business production; watch mix effects and one-time items for sustainability .
Capital return likely stepping up: Management’s >$500M 2017 buyback commentary, underpinned by $12.09B claims-paying resources, supports equity accretion and may provide stock support .
International diversification is real: UK infrastructure pipeline and MBIA UK acquisition broaden exposures and PVP, reducing reliance on U.S. refundings .
Puerto Rico path is litigious but bounded: Title III raises duration risk; company is assertively defending creditor rights; expect ongoing reserve and legal developments .
Earnings drivers are volatile: Fair value movements, bargain purchase gains, and commutation effects materially swing GAAP results; focus on operating EPS and PVP trend for core performance .
Secondary market demand is a tailwind: Rising insured secondary par volumes indicate growing institutional appreciation of wraps amid rate normalization .
Watch effective tax rate: Lower operating tax rate (mix and non-taxable gains) lifted EPS; rate normalization could temper EPS absent further one-time items .

ASSURED GUARANTY LTD (AGO)·Q1 2017 Earnings Summary