Executive Summary

Q1 2018 delivered record per‑share value metrics and solid profitability: GAAP net income $197M ($1.68 diluted EPS) and non‑GAAP operating income $155M ($1.33) as refunding-driven premium accelerations moderated and the tax rate fell to 9.3% .
Total revenues were $293M as net earned premiums declined to $145M and investment income to $101M; losses were a $18M benefit. Economic loss development was a $24M benefit driven by Hartford, partly offset by U.S. RMBS headwinds .
New business remained healthy despite a 29% drop in U.S. muni issuance: PVP $61M (vs $99M LY), gross par written $2.20B, and AGO insured ~62% of insured muni par sold, reinforcing pricing discipline and franchise strength .
Strategic catalysts: agreement to reinsure substantially all of Syncora’s insured portfolio (recurring earnings over time), continued aggressive buybacks ($98M in Q1; $151M YTD through May 3; $197M remaining authorization), and ongoing international infrastructure momentum (10th straight quarter of PVP) .

What Went Well and What Went Wrong

What Went Well
- Hartford outcome and lower discount rates delivered a $24M economic loss development benefit; loss and LAE were a $18M benefit, aiding earnings quality .
- Market leadership intact: AGO insured ~62% of insured muni par in the quarter; management emphasized pricing discipline despite lower issuance and aggressive competition .
- Record per‑share capital metrics and capital return: operating shareholders’ equity/share $57.97; adjusted book value/share $79.45; buybacks of $98M in Q1 and $151M through May 3 .
- CEO quote: “Assured Guaranty had a successful first quarter in 2018… value per share again reached record levels… We guaranteed the lion’s share of insured municipal par sold” .
What Went Wrong
- New business volume and accelerations fell: PVP $61M vs $99M LY; gross par written $2.20B vs $4.69B LY, reflecting a 29% market issuance decline and elimination of advance refundings under tax reform .
- Net earned premiums declined to $145M (from $164M LY) and net investment income to $101M ($122M LY), driven by lower premium accelerations and portfolio dynamics .
- U.S. RMBS economic loss development detracted $16M in the quarter (mainly lower excess spread), partially offsetting Hartford benefits .
- Analysts flagged portfolio amortization and refunding dependency; management expects amortization to stabilize later this year or in 2019 as refunding tailwinds fade and new opportunities (e.g., Syncora) and rising rates aid demand .

Financial Results

Performance vs prior year (YoY)

Metric	Q1 2017	Q1 2018
Net Earned Premiums ($M)	$164	$145
Net Investment Income ($M)	$122	$101
Net Change in Fair Value of Credit Derivatives ($M)	$54	$34
Total Revenues ($M)	$527	$293
Loss and LAE ($M)	$59	$(18)
Net Income ($M)	$317	$197
Diluted EPS ($)	$2.49	$1.68
Non‑GAAP Operating Income ($M)	$273	$155
Non‑GAAP Operating EPS ($)	$2.14	$1.33
Effective Tax Rate (GAAP)	14.7%	9.3%
Refundings/Terminations effect on NEP (pre‑tax, $M)	$58	$52
Economic Loss Development ($M)	—	$24 benefit

Sequential trend (oldest → newest)

Metric	Q3 2017	Q4 2017	Q1 2018
Non‑GAAP Operating Income ($M)	$156	$91 (incl. ~$35M tax reform charge)	$155
Net Earned Premiums + Credit Derivative Revenues ($M)	$194	$185	$179 ($145 NEP + $34 CDS)
Refundings/Terminations (pre‑tax, $M)	$87	$82	$52
Economic Loss Development ($M)	$(204)	$(15)	$24 benefit

Segment/new business mix (YoY)

New Business	Q1 2017	Q1 2018
Gross Written Premiums ($M)	$111	$73
PVP – U.S. Public Finance ($M)	$52	$35
PVP – Non‑U.S. Public Finance ($M)	$40	$26
PVP – U.S. Structured Finance ($M)	$5	$0
PVP – Non‑U.S. Structured Finance ($M)	$2	$0
Total PVP ($M)	$99	$61
Gross Par Written ($M)	$4,691	$2,202

KPIs and balance sheet (as of/for Q1 2018)

KPI	Value
Claims‑Paying Resources ($M)	$11,537
Net Par Outstanding ($M)	$257,089
Shareholders’ Equity / Share ($)	$59.67
Non‑GAAP Adj. Book Value / Share ($)	$79.45
U.S. Insured Market Share (par)	~62%

Notes: Total revenues include net earned premiums, net investment income, realized/unrealized derivative items and other; AGO emphasizes non‑GAAP operating income/EPS as core performance measures (see reconciliations) .

Guidance Changes

Metric	Period	Previous Guidance	Current Update	Change
Non‑GAAP effective tax rate	Forward (post‑tax reform)	n/a	~14%–16% expected (mix dependent)	Introduced
Refundings impact	2018	n/a	Expect decline in refunding volumes/accelerations after tax law eliminated advance refundings	Negative
Share repurchase authorization	As of May 3, 2018	n/a	$197M remaining; $151M repurchases YTD through May 3	Ongoing
Syncora reinsurance	2018 closing	n/a	Agreement announced; expected to add recurring earnings over time upon close	New

No formal revenue/EPS point guidance was provided.

Earnings Call Themes & Trends

Topic	Q3 2017 (Prior‑2)	Q4 2017 (Prior‑1)	Q1 2018 (Current)	Trend
Puerto Rico process	Strong criticism of fiscal plan; focus on legal rights; litigation posture; called for receiver at PREPA	Continued legal focus; appealed special revenues ruling; emphasized broader muni market rule‑of‑law implications	Emphasized Hartford benefit and ongoing PR litigation; framed macro surplus potential; sought consensual settlements under PROMESA	Continued legal advocacy; selective reserve updates
Refunding/accelerations	Elevated in 2017; $87M Q3 effect	$82M Q4 effect; warned 2018 drop post‑tax reform	$52M Q1 effect; reiterated expected decline	Downtrend expected
International infrastructure	Building credibility; multiple UK transactions	Strong year; Eurotunnel liquidity application; MBIA UK added scale	10th consecutive quarter of international PVP; minority stake in Rubicon Advisors announced	Durable pipeline
Capital return	Board added $300M authorization; repurchases 41% since 2013	$571M 2017 returns; $505M holdco liquidity; continue $500M annual target	Q1 $98M; YTD $151M; $197M remaining	Ongoing, accretive
Portfolio amortization	—	Management targeted balance around 2020 with help from transactions	Expect stabilization later 2018 or mid‑2019 as refundings wash through, Syncora adds, rising rates support demand	Improving trajectory

Management Commentary

“Assured Guaranty had a successful first quarter in 2018. Measures of Assured Guaranty’s value per share again reached record levels… We guaranteed the lion’s share of insured municipal par sold” — Dominic Frederico, CEO .
“Economic loss development in first quarter 2018 was a benefit of $24 million… primarily attributable to the State of Connecticut’s agreement to pay the debt service costs of certain bonds of the City of Hartford” — Press release .
“We announced an agreement… to reinsure… substantially all of the insured portfolio of Syncora Guarantee Inc.” — Press release .
“In the first quarter of 2018, net earned premiums were $145 million compared with $164 million… decrease due primarily to lower scheduled net earned premiums due to amortization… and lower refunding and terminations” — CFO Rob Bailenson .
“We expect to see the effects… elimination of tax‑exempt advance refundings… in the coming quarters” — CFO on refundings outlook .

Q&A Highlights

Portfolio trajectory: Management expects amortization to stop declining later 2018/mid‑2019 as refundings subside and new business (incl. Syncora) offsets runoff .
Refunding dynamics: Q1 refundings included prior‑year spillover due to GAAP legal defeasance timing; advance refundings elimination should reduce accelerations in rest of 2018 .
Capital returns: Continued targeting ~$500M annual repurchases; Q1 buybacks $98M; holdco liquidity and special dividends support program .
Syncora accretion (context from prior call): Expected to add ~$25–$30M annual earned premium (full year) and be accretive to ABV per share over time (timing dependent) .
Market share/penetration: AGO insured ~62% of insured muni par in Q1; management believes 50% penetration of A‑rated issuance is achievable in normalized rate environment .

Estimates Context

Wall Street consensus (S&P Global) for Q1 2018 EPS and revenue was not available via our tool at the time of analysis due to an S&P Global daily request limit; as such, we compare primarily vs prior year and recent quarters [GetEstimates error].
Management does not provide formal quarterly revenue/EPS guidance.

Key Takeaways for Investors

Core earnings quality: Lower losses (Hartford), reduced tax rate, and controlled expenses supported solid non‑GAAP operating income despite weaker refundings — a cleaner run‑rate foundation as the refunding tailwind fades .
Franchise strength: Dominant U.S. insured market share (~62% par), disciplined pricing, and durable international pipeline (10th consecutive quarter of PVP) position AGO to benefit as rates rise and spreads widen .
Capital deployment: Consistent buybacks (44% of shares since 2013; $197M remaining) and Syncora reinsurance (once closed) should drive per‑share value accretion and help offset portfolio amortization .
Risk watch: U.S. RMBS excess‑spread pressure caused a quarterly headwind; Puerto Rico legal trajectory remains the key overhang, but Hartford and other credits show effective loss mitigation; AGO emphasizes legal protections and historical muni loss discipline .
Medium‑term setup: Expect lower refunding accelerations in 2018, but rising rates, secondary market opportunities, international infra, and reinsurance transactions should support earnings and PVP; management sees portfolio stabilization in the next 12 months .

Citations

Press release and financial supplement:
Q1 2018 earnings call:
Prior quarters’ calls (trend context):

ASSURED GUARANTY LTD (AGO)·Q1 2018 Earnings Summary