Assured Guaranty Ltd. (NYSE: AGO) (AGL and, together with its subsidiaries, Assured Guaranty or the Company) announced today its financial results for the three-month period ended June 30, 2023 (second quarter 2023).
“New business production for the second quarter and first half remained strong, consistent with recent years’ results, and was diversified across U.S public finance, international public finance and global structured finance,” said Dominic Frederico, President and CEO. “First half GWP and PVP were $181 million and $203 million, respectively. First half GWP is the fifth largest first half GWP since 2009, while first half PVP is the second largest amount of first half PVP and the second time that first half PVP exceeded $200 million since 2009. For U.S. public finance, our share of the first half insured primary municipal bond market was 63%, up from 56% in the first half of 2022, and total insured market penetration increased to 9.0%,” he added.
“Also, in July 2023, we completed our transaction with Sound Point Capital Management, LP involving AssuredIM, taking a 30% interest in the new combined entity and, separately, we sold our entire equity interest in Assured Healthcare Partners, and will remain a strategic investor in certain AHP-managed funds; both transactions further our strategic objectives in the asset management sector and alternative investments.”
(1) | Per share information for net income and adjusted operating income is based on diluted shares. | |
(2) | Please see “Explanation of Non-GAAP Financial Measures.” |
Summary Financial Results | |||||||
(in millions, except per share amounts) | |||||||
Quarter Ended | |||||||
June 30, | |||||||
2023 | 2022 | ||||||
GAAP (1) | |||||||
Net income (loss) attributable to AGL | $ | 125 | $ | (47 | ) | ||
Net income (loss) attributable to AGL per diluted share | $ | 2.06 | $ | (0.74 | ) | ||
Weighted average diluted shares (2) | 60.1 | 63.8 | |||||
Non-GAAP | |||||||
Adjusted operating income (loss) (3) | $ | 36 | $ | 30 | |||
Adjusted operating income per diluted share (3) | $ | 0.60 | $ | 0.46 | |||
Weighted average diluted shares | 60.1 | 65.0 | |||||
Gain (loss) related to FG VIE and CIV consolidation (4) included in adjusted operating income | $ | (18 | ) | $ | 10 | ||
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share | $ | (0.30 | ) | $ | 0.15 | ||
Components of total adjusted operating income (loss) | |||||||
Insurance segment | $ | 106 | $ | 55 | |||
Asset Management segment | (2 | ) | — | ||||
Corporate division | (50 | ) | (35 | ) | |||
Other | (18 | ) | 10 | ||||
Adjusted operating income (loss) | $ | 36 | $ | 30 | |||
As of | |||||||||||
June 30, 2023 | December 31, 2022 | ||||||||||
Amount | Per Share | Amount | Per Share | ||||||||
Shareholders’ equity attributable to AGL | $ | 5,276 | $ | 89.65 | $ | 5,064 | $ | 85.80 | |||
Adjusted operating shareholders’ equity (3) | 5,628 | 95.64 | 5,543 | 93.92 | |||||||
ABV (3) | 8,487 | 144.21 | 8,379 | 141.98 | |||||||
Common Shares Outstanding | 58.9 | 59.0 | |||||||||
(1) | Generally accepted accounting principles in the United States of America. | |
(2) | In periods where the Company recognized a net loss, the impact of potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect. | |
(3) | Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release. | |
(4) | The effect of consolidating financial guaranty (FG) variable interest entities (VIEs) (FG VIEs) and consolidated investment vehicles (CIVs). |
On a per share basis, shareholders’ equity attributable to AGL increased to $89.65 as of June 30, 2023 from $85.80 as of December 31, 2022, primarily due to net income and unrealized gains on the investment portfolio, partially offset by dividends. On a per share basis, adjusted operating shareholders’ equity increased to $95.64 as of June 30, 2023, from $93.92 as of December 31, 2022, primarily due to operating income partially offset by dividends, and ABV increased to $144.21 as of June 30, 2023 from $141.98 as of December 31, 2022, primarily due to new business production.
Insurance Segment
The Insurance segment primarily consists of the Company’s insurance subsidiaries that provide credit protection products to the United States (U.S.) and non-U.S. public finance (including infrastructure) and structured finance markets.
Insurance Segment Results | ||||||
(in millions) | ||||||
Quarter Ended | ||||||
June 30, | ||||||
2023 | 2022 | |||||
Segment revenues | ||||||
Net earned premiums and credit derivative revenues | $ | 88 | $ | 86 | ||
Net investment income | 90 | 66 | ||||
Fair value gains (losses) on trading securities | 40 | (18 | ) | |||
Foreign exchange gains (losses) on remeasurement and other income (loss) | 6 | 5 | ||||
Total segment revenues | 224 | 139 | ||||
Segment expenses | ||||||
Loss expense (benefit) | 44 | (17 | ) | |||
Amortization of deferred acquisition costs (DAC) | 3 | 3 | ||||
Employee compensation and benefit expenses | 36 | 35 | ||||
Other operating expenses | 27 | 20 | ||||
Total segment expenses | 110 | 41 | ||||
Equity in earnings (losses) of investees | 5 | (34 | ) | |||
Segment adjusted operating income (loss) before income taxes | 119 | 64 | ||||
Less: Provision (benefit) for income taxes | 13 | 9 | ||||
Segment adjusted operating income (loss) | $ | 106 | $ | 55 | ||
Insurance segment adjusted operating income increased to $106 million in second quarter 2023, from $55 million in the three-month period ended June 30, 2022 (second quarter 2022). The increase was primarily due to fair value gains on the trading portfolio, higher net investment income and higher net asset values for alternative investments reported in “equity in earnings (losses) of investees”, offset in part by loss expense in second quarter 2023. The components of premiums, losses and income from the investment portfolio are presented below.
Insurance Segment Net Earned Premiums and Credit Derivative Revenues
Insurance Segment | |||||
Net Earned Premiums and Credit Derivative Revenues | |||||
(in millions) | |||||
Quarter Ended | |||||
June 30, | |||||
2023 | 2022 | ||||
Scheduled net earned premiums and credit derivative revenues | $ | 80 | $ | 81 | |
Accelerations | 8 | 5 | |||
Total | $ | 88 | $ | 86 | |
Insurance Segment Loss Expense (Benefit) and the Roll Forward of Expected Losses
Loss expense is a function of economic loss development (benefit), as well as the amortization of deferred premium revenue.
Insurance Segment | |||||||
Loss Expense (Benefit) | |||||||
(in millions) | |||||||
Quarter Ended | |||||||
June 30, | |||||||
2023 | 2022 | ||||||
Public finance | $ | 45 | $ | 11 | |||
U.S. residential mortgage-backed securities (RMBS) | (3 | ) | (28 | ) | |||
Other structured finance | 2 | — | |||||
Total | $ | 44 | $ | (17 | ) | ||
The table below presents the roll forward of expected losses for second quarter 2023.
Roll Forward of Net Expected Loss to be Paid (Recovered) (1) | |||||||||||||
(in millions) | |||||||||||||
Net Expected
| Economic Loss
| Net (Paid)
| Net Expected
| ||||||||||
Public finance | $ | 393 | $ | 54 | $ | (4 | ) | $ | 443 | ||||
U.S. RMBS | 82 | (9 | ) | — | 73 | ||||||||
Other structured finance | 42 | 4 | (2 | ) | 44 | ||||||||
Total | $ | 517 | $ | 49 | $ | (6 | ) | $ | 560 | ||||
(1) | Economic loss development (benefit) represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts, each net of reinsurance. Economic loss development (benefit) is the principal measure that the Company uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid (recovered) includes all transactions insured by the Company, regardless of the accounting model prescribed under GAAP and without consideration of deferred premium revenue. |
The economic loss development in second quarter 2023 of $49 million was mainly attributable to certain Puerto Rico exposures. The effect of changes in risk-free rates used to discount expected losses was a benefit of $6 million.
Insurance Segment Income from Investment Portfolio
Insurance Segment | ||||||
Income from Investment Portfolio | ||||||
(in millions) | ||||||
Quarter Ended | ||||||
June 30, | ||||||
2023 | 2022 | |||||
Net investment income | $ | 90 | $ | 66 | ||
Fair value gains (losses) on trading securities (1) | 40 | (18 | ) | |||
Equity in earnings (losses) of investees: | ||||||
AssuredIM Funds (2) | — | (33 | ) | |||
Other alternative investments | 5 | (1 | ) | |||
Total | $ | 135 | $ | 14 | ||
(1) | Contingent value instruments (CVIs) issued by Puerto Rico are classified as trading securities with changes in fair value reported in the condensed consolidated statements of operations. | |
(2) | Funds managed by Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM). |
Net investment income, which represents interest income on fixed-maturity debt securities and short-term investments, was higher in second quarter 2023 compared to second quarter 2022 primarily due to higher short-term interest rates and higher average balances in short-term investments, higher income on loss mitigation securities, as well as higher income on floating rate assets in the available-for-sale investment portfolio.
In the Insurance segment, investments in AssuredIM Funds are recorded at net asset value (NAV), with the change in NAV reported in “equity in earnings (losses) of investees.” As of June 30, 2023, the Insurance segment had invested $350 million (based on NAV) in AssuredIM Funds, and inception-to-date realized and unrealized gains on AssuredIM Funds totaled $138 million. Equity in earnings of investees is more volatile than net investment income on fixed-maturity securities and short-term investments. To the extent that the amounts invested in AssuredIM funds (now managed by Sound Point Capital Management, LP (Sound Point) and Assured Healthcare Partners LLC (AHP)) and other alternative investments increase and available-for-sale fixed-maturity securities decrease, net investment income may decline and mark-to-market volatility related to equity in earnings of investees may increase.
Insurance Segment New Business Production
Insurance Segment | |||||||||||||||||
New Business Production | |||||||||||||||||
(in millions) | |||||||||||||||||
Quarter Ended June 30, | |||||||||||||||||
2023 | 2022 | ||||||||||||||||
