Assured Guaranty Ltd. Reports Results for Third Quarter 2016

  • Net income was $479 million, or $3.60 per share, for third quarter 2016, compared with $129 million, or $0.88 per share, for third quarter 2015.
  • Operating income 1 was $508 million, or $3.83 per share, for third quarter 2016, compared with $164 million, or $1.12 per share, for third quarter 2015.
  • Acquisition of CIFG Holding Inc. resulted in an after-tax net bargain purchase gain and settlement of pre-existing relationship of $293 million or $2.21 per share.
  • Records set for shareholders' equity per share at $50.70, operating shareholders' equity 1 per share at $49.29 and adjusted book value 1 per share at $66.34.
  • Third quarter 2016 share repurchases totaled $55 million, or 2.1 million shares. On November 2, 2016, the Board of Directors authorized an additional $250 million of share repurchases.

Category:

Thursday, November 3, 2016 5:26 pm EDT

Dateline:

HAMILTON, Bermuda

Public Company Information:

NYSE:
AGO
"which lists the U.S. public finance new issues insured by the Company in third quarter 2016, and"

HAMILTON, Bermuda--(BUSINESS WIRE)--Assured Guaranty Ltd. (NYSE:AGO) (AGL and, together with its consolidated entities, Assured Guaranty or the Company) announced today its financial results for the three-month period ended September 30, 2016 (third quarter 2016).

Summary Financial Results

(in millions, except per share amounts)
            Quarter Ended
September 30,
2016   2015
 
Net income $ 479 $ 129
Operating income1 508 164
 
Net income per diluted share $ 3.60 $ 0.88
Operating income1 per diluted share 3.83 1.12
 
Diluted shares2 132.8 146.5
 
Gross written premiums $ 16 $ 40
PVP1 50 41
Gross par written 4,687 4,703
 

1 Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release. Income statement items mentioned in this press release that are described as operating (e.g. operating net earned premiums) are non-GAAP measures and represent components of operating income.

2 Diluted shares for generally accepted accounting principles (GAAP) net income and non-GAAP operating income were the same.

Summary Financial Results (continued)

(in millions, except per share amounts)
          As of
September 30, 2016   December 31, 2015
Amount   Per Share Amount   Per Share
 
Shareholders' equity $ 6,640 $ 50.70 $ 6,063 $ 43.96
Operating shareholders' equity1 6,456 49.29 5,946 43.11
Adjusted book value1 8,689 66.34 8,439 61.18
 
Common shares outstanding 131.0 137.9

________________________________________________

(1) Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release.

“Our third quarter results were excellent,” said Dominic Frederico, President and CEO. ”We earned $479 million in net income and $508 million of operating income, and we increased shareholders’ equity, operating shareholders’ equity and adjusted book value by $3.64, $4.03 and $4.48 per share, respectively. At the same time, we continued to execute on our strategic objectives, leading the municipal bond insurance industry in originations, making further progress on our acquisitions and returning capital to shareholders through share repurchases and dividends.

“Additionally, we received financial strength rating affirmations from S&P Global Ratings, Kroll Bond Rating Agency and Moody’s Investors Service during the quarter. S&P affirmed AGC, MAC and AGM at AA stable, KBRA affirmed MAC at AA+ stable and began rating AGC at AA stable, and Moody’s affirmed AGM at A2 stable and AGC at A3, while lifting AGC’s outlook to stable.”

On a per-share basis, shareholders' equity, operating shareholders' equity and adjusted book value increased in third quarter 2016 due primarily to the acquisition of CIFG Holding Inc. (CIFG Acquisition) and to the Company's repurchase of its common shares. The CIFG Acquisition contributed $2.23 to shareholder's equity and operating shareholders' equity per share and $3.85 to adjusted book value per share.

Third Quarter Results

GAAP Financial Information

Net income for third quarter 2016 was $479 million, compared with net income of $129 million for the three-month period ended September 30, 2015 (third quarter 2015). The increase in net income was primarily attributable to the CIFG Acquisition, which resulted in a $357 million bargain-purchase gain offset in part by a loss on settlement of pre-existing reinsurance relationships of $98 million (pretax) or $64 million (after tax).

Except for credit impairment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of the portfolio. Fair value gains on credit derivatives were $21 million in third quarter 2016, and were generated primarily by terminations of several transactions and price improvements on the underlying collateral. Fair value gains on credit derivatives in third quarter 2015 were $86 million, mainly driven by a gain on termination of a life insurance securitization transaction.

Loss and LAE was a benefit of $9 million in third quarter 2016, and an expense of $112 million in third quarter 2015. The benefit in third quarter 2016 was due primarily to changes in discount rates, and the purchase of insured bonds to mitigate losses, which was partially offset by an increase in loss reserves on certain Puerto Rico exposures. In third quarter 2015, the primary component of loss and LAE was an increase in loss reserves on Puerto Rico exposures.

The lower effective tax rate in third quarter 2016, compared with third quarter 2015, was primarily due to the non-taxable bargain purchase gain from the CIFG Acquisition and the proportion of income in non-taxable jurisdictions.

Consolidated Statements of Operations (unaudited)

(in millions)
      Quarter Ended
September 30,
2016   2015
Revenues:
Net earned premiums $ 231 $ 213
Net investment income 94 112
Net realized investment gains (losses) (2 ) (27 )
Net change in fair value of credit derivatives:
Realized gains (losses) and other settlements 15 6
Net unrealized gains (losses) 6   80  
Net change in fair value of credit derivatives 21 86
Fair value gains (losses) on committed capital securities (CCS) (23 ) (15 )
Fair value gains (losses) on financial guaranty variable interest
entities (FG VIEs) (11 ) 2
Bargain purchase gain and settlement of pre-existing relationships 259
Other income (loss) (3 ) (3 )
Total revenues 566 368
Expenses:
Loss and LAE (9 ) 112
Amortization of deferred acquisition costs 4 5
Interest expense 26 25
Other operating expenses 65   54  
Total expenses 86   196  
Income (loss) before income taxes 480 172
Provision (benefit) for income taxes 1   43  
Net income (loss) $ 479   $ 129  
 

Economic Loss Development

The economic development in third quarter 2016 was a benefit of $44 million, primarily related to the change in discount rates, the purchase of insured bonds to mitigate losses, and underlying collateral improvement for U.S. residential mortgage-backed securities (RMBS), offset by an increase in Puerto Rico reserves. The benefit attributable to the change in discount rates was $29 million.

Roll Forward of Net Expected Loss to be Paid (1)

(in millions)
 

Net Expected

Loss to be Paid

(Recovered) as

of June 30,

2016

 

Net Expected
Loss to be
Paid
(Recovered)
on CIFG as of
July 1, 2016

 

Economic

Loss

Development/

(Benefit)

 

Losses

(Paid)/

Recovered

 

Net Expected Loss

to be Paid

(Recovered) as

of September 30,

2016

 
Public finance $ 1,000 $ 42 $ 8 $ (196 ) $ 854
U.S. RMBS:
Before representations and
warranties (R&W) payable
(recoverable) 134 (1 ) (36 ) 14 111
R&W payable (recoverable) (2) 58   (21 ) 9   (9 ) 37
U.S. RMBS 192 (22 ) (27 ) 5 148
Other structured finance 134   2   (25 ) (23 ) 88
Total $ 1,326   $ 22   $ (44 ) $ (214 ) $ 1,090
 

________________________________________________

(1) Economic loss development represents the change in net expected loss to be paid attributable to the effects of changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts. Economic loss development is the principal measure that the Company uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid includes all transactions insured by the Company, whether written in insurance or credit derivative form, regardless of the accounting model prescribed under GAAP.

(2) The Company’s agreements with R&W providers generally provide that, as the Company makes claim payments, the R&W providers reimburse it for those claims; if the Company later receives reimbursement through the transaction (for example, from excess spread), the Company repays the R&W providers. When the Company projects receiving more reimbursements in the future than it projects paying in claims on transactions covered by R&W settlement agreements, the Company will have a net R&W payable.

New Business Production

New Business Production

(in millions)
      Quarter Ended September 30,
2016   2015

Gross

Written

Premiums

  PVP(1)  

Gross Par

Written

Gross

Written

Premiums

  PVP(1)  

Gross Par

Written

 
Public finance - U.S. $ 24 $ 25 $ 3,459 $ 41 $ 41 $ 4,703
Public finance - non - U.S. (9 ) 2 164 (1 )
Structured finance - U.S. 1 23 1,064 0 0
Structured finance - non-U.S. 0       0    
Total $ 16   $ 50   $ 4,687   $ 40   $ 41   $ 4,703

________________________________________________

(1) Please see “Explanation of Non-GAAP Financial Measures” at the end of this press release.

Gross written premiums include amounts collected upfront on new business written as well as the present value of future premiums discounted at risk free rates and the effects of changes in the estimated lives of transactions in the inforce book of business. The decrease in gross written premiums to $16 million in third quarter 2016 from $40 million in third quarter 2015, was primarily attributable to lower public finance new business production, and changes in estimated lives.

Total PVP of $50 million in third quarter 2016 exceeded PVP in third quarter 2015 by approximately 22% due mainly to a structured capital relief Triple-X excess of loss life reinsurance transaction. The overall average rating of new business improved to A from A-minus in third quarter 2015.

In the U.S. public finance sector, the average rating of par written was consistent with third quarter 2015 at A-minus. During third quarter 2016, Assured Guaranty once again guaranteed the majority of insured par issued in U.S. public finance.

Other Non-GAAP Financial Measures

Operating income was $508 million in third quarter 2016, compared with operating income of $164 million in third quarter 2015. The higher operating income was due primarily to the CIFG Acquisition and lower operating loss and LAE.

Total operating net earned premiums and credit derivative revenues in third quarter 2016 were $249 million, compared with $252 million in third quarter 2015. Acceleration of operating net earned premiums and credit derivative revenues was $130 million in third quarter 2016, compared with $105 million in third quarter 2015. On an operating income basis, credit derivative contracts and FG VIEs are treated as financial guaranty insurance.

Common Share Repurchases

Summary of Share Repurchases

(in millions, except per share amounts)
        Amount  

Number of

Shares

 

Average Price

Per Share

 
2013 $ 264 12.5 $ 21.12
2014 590 24.4 24.17
2015 555 21.0 26.43
2016 (January 1 - March 31) 75 3.0 24.69
2016 (April 1 - June 30) 60 2.3 25.73
2016 (July 1 - September 30) 55 2.1 26.83
2016 (October 1 - through November 3) 20   0.7   28.90
Total 2016 210   8.1   25.89
Cumulative repurchases since the beginning of 2013 $ 1,619   66.0   $ 24.52
 

On November 2, 2016, the Board of Directors approved an incremental $250 million share repurchase authorization, supplementing the $95 million remaining under the Company’s prior share repurchase authorization as of that date. These repurchases can be made from time to time in the open market or in privately negotiated transactions.

The Board of Directors authorized the Company to use a portion of its share repurchase program to repurchase 297,131 common shares from its Chief Executive Officer and 23,062 common shares from its General Counsel. A change in the Internal Revenue Code applicable to Bermuda companies requires that deferred compensation for service prior to 2009 in the Assured Guaranty Ltd. Supplemental Employee Retirement Plan (the AGL SERP), which includes share units held by these officers in the employer stock fund of the AGL SERP, be included in such officers' income no later than 2017. The Company had amended the terms of the AGL SERP as permitted by the change in law to provide that common shares in settlement of the units would be delivered in 2017, without any withholding for taxes. The Company would repurchase shares on the date that these officers receive the same number of shares in settlement of the share units held by them. The shares would be purchased at the closing price of a common share of the Company on the New York Stock Exchange on that same date, which is currently expected to be January 6, 2017. The officers have indicated that a significant portion of the proceeds will be used to pay taxes on the distributions from the AGL SERP. After giving effect to the share repurchases, the Chief Executive Officer and General Counsel will own, directly and indirectly, more than 1.2 million and 289 thousand common shares of the Company, respectively.

As in the past, the Company's execution of its capital management strategy is contingent upon its available free cash and the capital position of the parent company, market conditions, the maintenance of its strong financial strength ratings and other factors. The repurchase program may be modified, extended or terminated by the board of directors at any time. It does not have an expiration date.

Consolidated Balance Sheets (unaudited)

(in millions)
        As of
September 30, 2016   December 31, 2015
Assets
Investment portfolio:
Fixed maturity securities, available-for-sale, at fair value $ 10,752 $ 10,627
Short-term investments, at fair value 528 396
Other invested assets 165   169
Total investment portfolio 11,445 11,192
Cash 98 166
Premiums receivable, net of commissions payable 608 693
Ceded unearned premium reserve 213 232
Deferred acquisition costs 108 114
Reinsurance recoverable on unpaid losses 87 69
Salvage and subrogation recoverable 455 126
Credit derivative assets 28 81
Deferred tax asset, net 459 276
Current income tax receivable 40
FG VIE assets, at fair value 877 1,261
Other assets 291   294
Total assets $ 14,669   $ 14,544
Liabilities and shareholders' equity
Liabilities
Unearned premium reserve $ 3,668 $ 3,996
Loss and LAE reserve 1,091 1,067
Reinsurance balances payable, net 71 51
Long-term debt 1,304 1,300
Credit derivative liabilities 509 446
Current income tax payable 26
FG VIE liabilities with recourse, at fair value 832 1,225
FG VIE liabilities without recourse, at fair value 153 124
Other liabilities 375   272
Total liabilities 8,029 8,481
Shareholders' equity
Common stock 1 1
Additional paid-in capital 1,166 1,342
Retained earnings 5,110 4,478
Accumulated other comprehensive income 358 237
Deferred equity compensation 5   5
Total shareholders' equity 6,640   6,063
Total liabilities and shareholders' equity $ 14,669   $ 14,544
 

Explanation of Non-GAAP Financial Measures

The Company references financial measures that are not in accordance with GAAP. Management and the Board of Directors use non-GAAP financial measures, as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. By disclosing non-GAAP financial measures, the Company gives investors, analysts and financial news reporters access to some of the same information that management and the Board of Directors review internally. Assured Guaranty believes its presentation of non-GAAP financial measures is consistent with how analysts calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and with how investors, analysts and the financial news media evaluate Assured Guaranty’s financial results.

Many investors, analysts and financial news reporters use operating shareholders’ equity as the principal financial measure for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Many of the Company’s fixed income investors also use operating shareholders’ equity to evaluate the Company’s capital adequacy. Many investors, analysts and financial news reporters also use adjusted book value to evaluate AGL’s share price and as the basis of their decision to recommend, buy or sell the AGL common shares. Operating income enables investors and analysts to evaluate the Company’s financial results as compared with the consensus analyst estimates distributed publicly by financial databases. Two non-GAAP financial measures, growth in adjusted book value per share and operating income, are key measures used to help determine compensation.

The following paragraphs and tables define each non-GAAP financial measure disclosed by the Company and describe why it is useful. A reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below.

Operating Income

Management believes that operating income is a useful measure because it presents the results of operations of the Company with all financial guaranty contracts accounted for on a consistent basis and excludes fair value adjustments that are not expected to result in economic gain or loss, which clarifies the understanding of the underwriting results and financial condition of the Company. Operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.

2) Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss. Additionally, this adjustment presents all financial guaranty contracts on a more consistent basis of accounting, whether or not they are subject to derivative accounting rules.

3) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize.

5) Elimination of the effects of consolidating FG VIEs. GAAP requires the Company to consolidate certain VIEs that have issued debt obligations insured by the Company even though the Company does not own such VIEs. This adjustment presents all financial guaranty contracts on a more consistent basis of accounting, whether or not GAAP requires consolidation.

6) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

Summary Reconciliation of

GAAP Net Income to Non-GAAP Operating Income (1)

(in millions)
            Quarter Ended
September 30,
2016   2015
 
Net income (loss) $ 479 $ 129
Less pre-tax adjustments:
Realized gains (losses) on investments (2 ) (35 )
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives (4 ) 4
Fair value gains (losses) on CCS (23 )

(15

)
Foreign exchange gains (losses) on remeasurement of premiums receivable
and loss and LAE reserves (2 )

(9

)
Effect of consolidating FG VIEs (17 ) 10  
Total pre-tax adjustments (48 ) (45 )
Less tax effect on pre-tax adjustments 19   10  
Operating income $ 508   $ 164  
 

________________________________________________

(1) The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

Detailed Reconciliation of GAAP Net Income

to Non-GAAP Operating Income (1)

(in millions, except per share amounts)
  Quarter Ended September 30, 2016   Quarter Ended September 30, 2015

GAAP

Income

Statement

Line Items

As Reported

 

Less:

Operating

Income

Adjustments

 

Non-GAAP

Operating

Income

Components

GAAP

Income

Statement

Line Items

As Reported

 

Less:

Operating

Income

Adjustments

 

Non-GAAP

Operating

Income

Components

Revenues:
Net earned premiums $ 231 $ (4 ) $ 235 $ 213 $ (6 ) $ 219
Net investment income 94 (1 ) 95 112 (2 ) 114
Net realized investment gains (losses) (2 ) (2 ) (27 ) (27 ) 0
Net change in fair value of credit derivatives:
Realized gains (losses) and other settlements 15 15 6 6
Net unrealized gains (losses) 6 2 4 80 83 (3 )
Credit derivative revenues   (14 ) 14     (33 ) 33  
Net change in fair value of credit derivatives 21 3 18 86 56 30
Fair value gains (losses) on CCS (23 ) (23 ) (15 ) (15 )
Fair value gains (losses) on FG VIEs (11 ) (11 ) 2 2
Bargain purchase gain and
settlement of pre-existing
relationships 259 259
Other income (loss) (3 ) (2 ) (1 ) (3 ) (9 ) 6  
Total revenues 566 (40 ) 606 368 (1 ) 369
Expenses:
Loss and LAE:
Financial guaranty insurance (9 ) 0 (9 ) 112 (10 ) 122
Credit derivatives 8 (8 ) 54 (54 )
Amortization of deferred acquisition costs 4 0 4 5 0 5
Interest expense 26 26 25 25
Other operating expenses 65     65   54   0   54  
Total expenses 86   8   78   196   44   152  
Income (loss) before income taxes 480 (48 ) 528 172 (45 ) 217
Provision (benefit) for income taxes 1   (19 ) 20   43   (10 ) 53  
Income (loss) $ 479   $ (29 ) $ 508   $ 129   $ (35 ) $ 164  
 
Diluted shares 132.8 132.8 146.5 146.5
 
Per share $ 3.60 $ 3.83 $ 0.88 $ 1.12
 
Effective tax rate 0.3 % 3.8 % 25.0 % 24.1 %

________________________________________________

(1) The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

Operating Shareholders’ Equity and Adjusted Book Value

Management believes that operating shareholders’ equity is a useful measure because it presents the equity of the Company with all financial guaranty contracts accounted for on a consistent basis and excludes fair value adjustments that are not expected to result in economic gain or loss, which clarifies the understanding of the underwriting results and financial condition of the Company. Operating shareholders’ equity is the basis of the calculation of adjusted book value (see below). Operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of the effects of consolidating FG VIEs in order to present all financial guaranty contracts on a more consistent basis of accounting, whether or not GAAP requires consolidation. GAAP requires the Company to consolidate certain VIEs that have issued debt obligations insured by the Company even though the Company does not own such VIEs.

2) Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

4) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI) (excluding foreign exchange remeasurement). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore should not recognize an economic gain or loss.

5) Elimination of the tax asset or liability related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

Management uses adjusted book value to measure the intrinsic value of the Company, excluding franchise value. Growth in adjusted book value per share is one of the key financial measures used in determining the amount of certain long term compensation to management and employees and used by rating agencies and investors. Management believes that adjusted book value is a useful measure because it enables an evaluation of the net present value of the Company’s in-force premiums and revenues net of expected losses. Adjusted book value is operating shareholders’ equity, as defined above, further adjusted for the following:

1) Elimination of deferred acquisition costs, net. These amounts represent net deferred expenses that have already been paid or accrued and will be expensed in future accounting periods.

2) Addition of the net present value of estimated net future credit derivative revenue. See below.

3) Addition of the deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed, net of reinsurance. This amount represents the expected future net earned premiums, net of expected losses to be expensed, which are not reflected in GAAP equity.

4) Elimination of the tax asset or liability related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The premiums and revenues included in adjusted book value will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current adjusted book value due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults and other factors.

Reconciliation of GAAP Shareholders' Equity to

Operating Shareholders' Equity (1) and Adjusted Book Value (1)

(in millions, except per share amounts)
  As of

September 30,

2016

 

December 31,

2015

 
Shareholders' equity $ 6,640 $ 6,063
Less pre-tax adjustments:
Effect of consolidating FG VIEs (38 ) (35 )
Non-credit impairment unrealized fair value gains (losses) on credit
derivatives (284 ) (241 )
Fair value gains (losses) on CCS 12 62
Unrealized gain (loss) on investment portfolio excluding foreign
exchange effect 572 376
Taxes (78 ) (45 )
Operating shareholders' equity 6,456 5,946
Pre-tax adjustments:
Less: Deferred acquisition costs 108 114
Plus: Net present value of estimated net future credit derivative
revenue 155 169
Plus: Net unearned premium reserve on financial guaranty contracts in
excess of expected loss to be expensed 3,062 3,417
Taxes (876 ) (979 )
Adjusted book value $ 8,689   $ 8,439  
 
Shares outstanding at the end of the period 131.0 137.9
 
Per share:
Shareholders' equity $ 50.70 $ 43.96
Operating shareholders' equity 49.29 43.11
Adjusted book value 66.34 61.18
 

________________________________________________

(1) The non-GAAP financial measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

Net Present Value of Estimated Net Future Credit Derivative Revenue

Management believes that this amount is a useful measure because it enables an evaluation of the value of future estimated credit derivative revenue. There is no corresponding GAAP financial measure. This amount represents the present value of estimated future revenue from the Company’s credit derivative in-force book of business, net of reinsurance, ceding commissions and premium taxes, for contracts without expected economic losses, and is discounted at 6%. Estimated net future credit derivative revenue may change from period to period due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

PVP or Present Value of New Business Production

Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production for the Company by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as premium supplements and additional installment premium on existing contracts as to which the issuer has the right to call the insured obligation but has not exercised such right, whether in insurance or credit derivative contract form, which GAAP gross written premiums and the net credit derivative premiums received and receivable portion of net realized gains and other settlements on credit derivatives (Credit Derivative Revenues) do not adequately measure. PVP in respect of financial guaranty contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums, in each case, discounted at 6%. For purposes of the PVP calculation, management discounts estimated future installment premiums on insurance contracts at 6%, while under GAAP, these amounts are discounted at a risk free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction. Actual future net earned or written premiums and Credit Derivative Revenues may differ from PVP due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults, or other factors that affect par outstanding or the ultimate maturity of an obligation.

Reconciliation of PVP

to Gross Written Premiums (1)

(in millions)
  Quarter Ended
September 30, 2016
Public Finance   Structured Finance  
U.S.   Non - U.S. U.S.   Non - U.S. Total
Total PVP $ 25 $ 2 $ 23 $ $ 50
Less: PVP of non-financial guaranty
insurance 22 22
Less: Financial guaranty installment
premium PVP 0 2 1 3
Plus: Installment gross written

premiums and other GAAP

adjustments(2) (1 ) (9 ) 1   0   (9 )
Total gross written premiums $ 24   $ (9 ) $ 1   $ 0   $ 16  
 
  Quarter Ended
September 30, 2015
Public Finance   Structured Finance  
U.S.   Non - U.S. U.S.   Non - U.S. Total
Total PVP $ 41 $ $ 0 $ $ 41
Less: PVP of non-financial guaranty
insurance 1 1
Less: Financial guaranty installment
premium PVP (1 ) (1 )

Plus: Installment gross written premiums

and other GAAP adjustments(2)

  (1 ) 0   0   (1 )
Total gross written premiums $ 41   $ (1 ) $ 0   $ 0   $ 40  
 

________________________________________________

(1) The non-GAAP financial measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

(2) Includes present value of new business on installment policies discounted at the prescribed GAAP discount rates, gross written premium adjustments on existing installment policies due to changes in assumptions, any cancellations of assumed reinsurance contracts, and other GAAP adjustments.

Conference Call and Webcast Information

The Company will host a conference call for investors at 8:00 a.m. Eastern Time (9:00 a.m. Atlantic Time) on Friday, November 4, 2016. The conference call will be available via live and archived webcast in the Investor Information section of the Company's website at AssuredGuaranty.com or by dialing 1-877-281-1545 (in the U.S.) or 1-412-902-6609 (International). A replay of the call will be made available through February 3, 2017. To listen to the replay, dial 1-877-344-7529 (in the U.S.) or 1-412-317-0088 (International), passcode 10095383. The replay will be available one hour after the conference call ends.

Please refer to Assured Guaranty's September 30, 2016 Financial Supplement, which is posted on the Company's website at assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd , for more information on the Company's financial guaranty portfolios, investment portfolio and other items. The Company is also posting on the same page of its website:

  • “Public Finance Transactions in 3Q 2016,” which lists the U.S. public finance new issues insured by the Company in third quarter 2016, and
  • “Structured Finance Transactions at September 30, 2016,” which lists the Company's structured finance exposure as of that date.

In addition, the Company is posting at assuredguaranty.com/presentations the “September 30, 2016 Equity Investor Presentation.” Furthermore, the Company's separate-company subsidiary financial supplements and its Fixed Income Presentation for the current quarter will be posted on the Company's website when available. Those documents will be furnished to the Securities and Exchange Commission in a Current Report on Form 8-K.

Assured Guaranty Ltd. is a publicly traded (NYSE: AGO) Bermuda-based holding company. Its operating subsidiaries provide credit enhancement products to the U.S. and international public finance, infrastructure and structured finance markets. More information on Assured Guaranty Ltd. and its subsidiaries can be found at AssuredGuaranty.com .

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statements made in this press release reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. For example, Assured Guaranty's calculations of adjusted book value, PVP, net present value of estimated future installment premiums in force and total estimated net future premium earnings and statements regarding its capital position and demand for its insurance and other forward-looking statements could be affected by rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s subsidiaries have insured; reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty's insurance; developments in the world’s financial and capital markets that adversely affect obligors’ payment rates, Assured Guaranty’s loss experience, or its exposure to refinancing risk in transactions (which could result in substantial liquidity claims on its guarantees); the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures; the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates; deterioration in the financial condition of Assured Guaranty’s reinsurers, the amount and timing of reinsurance recoverables actually received and the risk that reinsurers may dispute amounts owed to Assured Guaranty under its reinsurance agreements; increased competition, including from new entrants into the financial guaranty industry; rating agency action on obligors, including sovereign debtors, resulting in a reduction in the value of securities in Assured Guaranty's investment portfolio and in collateral posted by and to Assured Guaranty; the inability of Assured Guaranty to access external sources of capital on acceptable terms; changes in the world’s credit markets, segments thereof, interest rates or general economic conditions; the impact of market volatility on the mark-to-market of Assured Guaranty’s contracts written in credit default swap form; changes in applicable accounting policies or practices; changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions; the impact of changes in the world’s economy and credit and currency markets and in applicable laws or regulations relating to the decision of the United Kingdom to exit the European Union; difficulties with the execution of Assured Guaranty’s business strategy; loss of key personnel; the effects of mergers, acquisitions and divestitures; natural or man-made catastrophes; other risks and uncertainties that have not been identified at this time; management’s response to these factors; and other risk factors identified in AGL’s filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of November 3, 2016, and Assured Guaranty undertakes no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Contact:

Assured Guaranty Ltd.
Robert Tucker, 212-339-0861
Senior Managing Director, Investor Relations and Corporate Communications
rtucker@agltd.com
or
Ashweeta Durani, 212-408-6042
Vice President, Corporate Communications
adurani@agltd.com