Assured Guaranty Q1 2025 Earnings Report

Assured Guaranty EPS Results

• Actual EPS: $3.18
• Consensus EPS: $3.15
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $1.96

Assured Guaranty Revenue Results

• Actual Revenue: $345.00 million
• Expected Revenue: $257.96 million
• Beat/Miss: Beat by +$87.04 million
• YoY Revenue Growth: N/A

Assured Guaranty Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Friday, May 9, 2025
• Conference Call Time: 8:00AM ET

Assured Guaranty (NYSE:AGO) Ltd is a Bermuda-domiciled provider of financial guaranty insurance and reinsurance products serving public finance, infrastructure and structured finance markets. The company’s primary business activity is credit enhancement, whereby it guarantees the timely payment of principal and interest on debt obligations issued by municipal and infrastructure entities. By combining rigorous risk assessment with active portfolio management, Assured Guaranty helps issuers access capital at more attractive rates while protecting investors against credit events.

In its public finance segment, the company underwrites municipal bond insurance for state and local governments, public-private partnerships and essential infrastructure projects. Its structured finance offerings cover asset-backed securities, residential and commercial mortgage obligations, and other specialty lending transactions. The reinsurance arm provides capacity relief and diversification to third-party insurers by assuming credit risk on existing policies, and the firm also offers runoff management services to optimize recoveries on legacy guaranteed portfolios.

Headquartered in Hamilton, Bermuda, with principal executive offices in New York, Assured Guaranty conducts business across North America, Europe and select Asian markets. Since its founding in the late 1980s, the company has navigated multiple credit cycles and evolving regulatory frameworks, refining its underwriting standards and capital management approach. Under the leadership of Chairman and Chief Executive Officer Dominic J. Frederico, Assured Guaranty continues to emphasize disciplined underwriting, robust credit analytics and strategic capital allocation to support its policyholders and stakeholders.

Assured Guaranty Q1 2025 Earnings Call Transcript

Key Takeaways

• Adjusted operating income per share rose 62% year-over-year to $3.18 in 1Q25, driven by core business growth and a legal settlement gain.
• A $103 million pretax gain was recognized from the settlement of litigation with Lehman Brothers, underscoring the company’s legal and credit recovery capabilities.
• New business production totaled $39 million of PVP in the quarter, with Assured Guaranty capturing 64% of the US municipal bond insurance primary market insured par and strong momentum in the secondary market reaching $376 million.
• Alternative investments delivered a record $59 million of quarterly income and an inception-to-date annualized rate of return of 13%, bolstering investment portfolio performance.
• Economic loss development was $48 million in 1Q25 (excluding litigation benefits), primarily driven by the unresolved Puerto Rico Electric Power Authority exposure, highlighting ongoing credit risks.

Presentation

[Operator]

Good morning and welcome to the Assured Guaranty Limited First Quarter 2025 earnings conference call. My name is Ezra, and I will be the operator for today's call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

[Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications at Assured Guaranty Ltd]

Thank you, Operator, and thank you all for joining Assured Guaranty for our First Quarter 2025 financial results conference call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlooks, market conditions, credit spreads, financial ratings, loss reserves, financial results, 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.

[Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications at Assured Guaranty Ltd]

Please refer to the investor information section of our website for our most recent presentations and SEC filings, most current financial filings, and for the risk factors. This presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures in our current financial supplement and equity investor presentation, which are on our website at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited, Rob Bailenson, our Chief Operating Officer, and Ben Rosenblum, 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.

[Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications at Assured Guaranty Ltd]

I will now turn the call over to Dominic.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

Thank you, Robert, and welcome to everyone joining today's call. Assured Guaranty had a solid first quarter of 2025. Adjusted operating income per share came in at $3.18 for the first quarter of 2025, compared with $1.96 in the first quarter of last year. Our key valuation measures again reached new highs at quarter end on a per share basis, with adjusted operating shareholders' equity at $117.40, adjusted book value at $172.79, and shareholders' equity per share at $112.80. Our new business production in the quarter was $39 million of PBP, of which roughly 65% came from the U.S. public finance, where we enjoyed a good flow of high-quality business. The balance was produced in global structured finance and non-U.S. public finance. In both of those areas, deal premiums tend to be higher, but the timing of transactions tends to vary because development times are often longer in those areas.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

I'll let Rob give you more details in a moment. In an important achievement that we mentioned last quarter, we concluded litigation with Lehman Brothers International (Europe) in early February 2025, and we recognized a pre-tax gain of $103 million in the first quarter of 2025. This positive outcome is a result of years of negotiation and litigation and is a testament to our determination to defend our legal rights to the fullest extent possible. We have the same determination to enforce our rights as a secured creditor of the Puerto Rico Electric Power Authority. It is again worth noting that over the FOMB's objections, the First Circuit has confirmed that bondholders are secured by an unavoidable security interest in PREPA's past, current, and future net revenues. PREPA remains our final unresolved defaulting Puerto Rico exposure.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

Our strategic approach to asset management continues to focus on increasing the fee-based earnings generated through our 30% ownership interest in Sound Point, which contributed $13 million to our income in the first quarter. In addition, our investment portfolio benefited from attractive returns on our alternative investments through Sound Point. Total first quarter investment income from all of our alternative investments was $59 million, the highest quarterly level to date for our alternative investment portfolio. Our inception-to-date annualized rate of return for all alternative investments was 13%. Globally, we are currently experiencing a highly volatile market environment and an unpredictable economic environment, in other words, the kind of conditions Assured Guaranty is built for. We have proven for four decades the reliability and value of our guarantee and the resilience of our business model through exceptionally difficult economic and geopolitical environments.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

We believe the current environment, as volatile as it's been over the past two months, has the potential to drive increased demand for our guarantee as investors seek out proven instruments for reliable cash flow and capital preservation, and issuers seek out increased certainty of market access along with more efficient executions. We have the financial strength, market position, credit skills, surveillance operations, remediation abilities, and comprehensive enterprise risk management to protect our capital as we help issuers and counterparties reduce borrowing costs, improve capital efficiency, and provide investment choices designed specifically to give investors confidence in times like these. I will now turn the call over to Rob to provide more details about our production results.

[Rob Bailenson, COO at Assured Guaranty Ltd]

Thank you, Dominic, and good morning to everyone on the call. Assured Guaranty closed $39 million of PVP in the first quarter of 2025. U.S. public finance led the way with $25 million of PVP, and non-U.S. public finance and global structured finance each contributed $7 million of PVP. For the first quarter of 2025, Assured Guaranty continued as the leader in U.S. municipal bond insurance, capturing 64% of the primary market insured par sold and 58% of the insured transaction count. Compared with the first quarter of the previous year, Assured Guaranty's insured par sold was up 23% to $4.7 billion and up 46% to 222 new issues in transaction count.

[Rob Bailenson, COO at Assured Guaranty Ltd]

In addition, while quarterly par insured was the second highest in a decade, the average underlying credit quality of first quarter municipal transactions was single-A, indicating higher credit quality, less risk, lower rating agency capital charges, and less PVP than a similar par amount of more typically rated municipal business would produce. In fact, during the quarter, 30% of the municipal transactions that we closed had underlying ratings in the double-A category by S&P or Moody's. We are excited about developments in our secondary market bond insurance business, where activity increased substantially during the first quarter of 2025, producing $376 million of insured par, more than in all of 2024. We believe that many secondary market investors in part sought our guarantee to manage the potential portfolio impact of the current environment's economic stress and market volatility.

[Rob Bailenson, COO at Assured Guaranty Ltd]

We are confident our secondary market business has the potential to make a greater contribution going forward, and we have focused the past year on modernizing our processes and technology for acquiring and executing secondary market business. We have already deployed some of the new technology and aim to build a more consistent transaction pipeline with thousands of outstanding issues pre-approved to secondary market insurance. In the primary market, we continue to use our guarantee to help support some of the largest transactions, and we see our positive results in this area as a gauge of the further growth of institutional demand for our guarantee. In our view, such growth reflects institutions' heightened appreciation of the relative price stability and increased market liquidity our insurance can provide, along with the reduced borrowing costs issuers receive.

[Rob Bailenson, COO at Assured Guaranty Ltd]

The first quarter of 2025 included eight large transactions with insured par over $100 million, including $261 million for Indiana Municipal Power, $256 million for Sumter Landing Community Development District, and $186 million for the Oklahoma Turnpike Authority. Among double-A credits, which we define as credits rated in the double-A category by S&P and/or Moody's, Assured Guaranty insured 53 primary and secondary transactions for a total of $1.7 billion of insured par during the quarter, further reflecting what we believe is the market's recognition of the value our guarantee can add to even highly rated credits. For non-U.S. public finance, new business in the first quarter of 2025 primarily included U.K. regulated utility transactions, as well as a secondary market transaction for a U.K. public sector entity. Structured finance production in the first quarter of 2025 was primarily attributable to subscription finance and pooled corporate transactions. Both non-U.S.

[Rob Bailenson, COO at Assured Guaranty Ltd]

Public and structured finance have expanded the application of our products into various new sectors and locations, and we look to continue to develop additional product applications and expand into new territories to further support our business growth. For instance, post-quarter, we guaranteed a transaction issued by XpFibre, the largest independent fiber-to-home operator in France. This is our first primary financial guarantee in the French infrastructure space since we opened our Paris office and represents a key milestone in our strategy to expand our product offerings and strengthen our presence in continental Europe. We expect demand to continue for our core products and see that demand likely increasing.

[Rob Bailenson, COO at Assured Guaranty Ltd]

At times when challenges or uncertainty arises in the economy and financial markets, or when the cost of borrowing goes up, our products can help further optimize a variety of transactions so our clients can accomplish more with lower financing costs and/or better capital efficiencies. I'll now turn the call over to Ben.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Thank you, Dominic and Rob, and good morning. I am pleased to report first quarter 2025 adjusted operating income of $162 million, or $3.18 per share. This represents a 62% increase from the first quarter 2024 adjusted operating income of $1.96 per share, or $113 million. The largest driver of the increase in adjusted operating income in the first quarter of 2025, compared with the first quarter of 2024, is the $103 million pre-tax gain, which represents the judgment awarded and claims for attorney's fees, expenses, and interest in connection with the LBIE litigation. This equates to an $82 million after-tax gain, or $1.62 per share. The LBIE gain was reported as a $63 million recovery that is reflected as a benefit and loss expense and economic development and $40 million in credit derivative revenues.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Excluding the $40 million associated with litigation, net earned premiums and credit derivative revenues decreased by $28 million due to lower financial guarantee refundings and terminations. However, scheduled net earned premiums and credit derivative revenues increased by 7%, and deferred premium revenue remained strong at $3.9 billion. First quarter 2025 economic loss development, excluding the litigation benefit, was $48 million, mainly due to losses on the Puerto Rico Electric Power Authority, or PREPA, and certain U.K. regulated utilities. The PREPA loss in the first quarter was due to a potential delay in the expected timing of the resolution of PREPA. Loss expense included in adjusted operating income, excluding the benefit associated with the litigation, was $40 million and was primarily related to PREPA and certain healthcare exposures.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Our investment portfolio continues to perform well and demonstrates the value of having both a stable stream of interest income from the fixed maturity portfolio as well as income from a diverse portfolio of alternative investments. In the first quarter of 2025, net investment income on the available for sale fixed maturity and short-term investment portfolio for the segments and corporate division was $90 million, compared with $86 million in the first quarter of 2024. In the first quarter of 2025, net investment income included $11 million related to CLO equity tranches. Certain CLO equity tranche investments were reclassified to the available for sale fixed maturity portfolio in the fourth quarter of 2024, with interest income now reported in net investment income and changes in fair value reported in other comprehensive income.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

The company previously held these CLO equity tranches in a Sound Point managed fund, with changes in net asset value reported in equity and earnings or losses of investees in the insurance segment. Net investment income on the short-term investment portfolio decreased by $9 million as a result of lower short-term interest rates and lower average short-term asset balances. Alternative investments have generated an annualized internal rate of return of approximately 13% on an inception-to-date basis through March 31st, 2025. Equity and earnings from our alternative investments reported in our segments and corporate division results were $46 million, compared with $37 million in the first quarter of 2024. The change in fair value of trading securities, which mainly consists of Puerto Rico contingent value instruments, was a $1 million gain, compared with a $26 million gain in the first quarter of 2024.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Breaking down the main contributors of our first quarter results, the insurance segment contributed $168 million, up from $149 million in the first quarter of 2024. The asset management segment contributed $12 million, up from $1 million in the first quarter of 2024, and mainly consists of earnings related to our 30% ownership interest in Sound Point. These segment earnings were offset in part by the corporate division's adjusted operating loss of $20 million in the first quarter of 2025, which is down from a $37 million loss in the prior year. On the capital management front, in the first quarter of 2025, we repurchased 1.3 million shares for $120 million at an average price of $89.72 per share. Our remaining authorization is approximately $181 million. We also returned $18 million in dividends to our shareholders.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

In terms of our current holding company liquidity position, we have cash and investments of approximately $257 million, of which $53 million resides in AGL. Share repurchases, along with adjusted operating income and new business production, collectively contributed to new records for adjusted operating shareholders' equity per share of over $117 and adjusted book value per share of over $172. While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect the value of our key strategic initiatives, which build shareholder value over the long term. I'll now turn the call over to our operator to give you the instructions for the Q&A period.

[Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications at Assured Guaranty Ltd]

Operator.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. Our first question comes from Marissa Lobo with UBS. Marissa, your line is now open. Please go ahead.

[Marissa Lobo, Analyst at UBS]

Thanks. Good morning. Thanks for taking my question. On the topic of U.K. water exposures, specifically Thames Water, what likelihood are you now placing on a haircut to the debt, given there is the clear bidder for Thames?

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

Marissa, that's not the way our reserves work. I'll let Ben give you the tutorial on reserving. There are many ways to look at it, and Ben wants you to work it through.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Yeah. So I mean, I think there are a couple of ways you can look at it.

[Marissa Lobo, Analyst at UBS]

There are a range of—right. I understand there's a range of scenarios.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

You got to outline all possible scenarios of probability, weight them.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Right. I think you have to look at really a couple of factors. One, what scenarios you're looking at in each probability weight. A scenario may have a haircut or may not have a haircut. In the event there is a haircut, then what kind of recovery would you get if there was potentially equity on the other side of it? We obviously have spent a lot of time looking at each of the scenarios, assessing what we think the likelihood of a haircut is based on information that we are involved in and getting. We don't reserve through the marketplace. We don't reserve through newspapers and articles you see. We do look at each—we are talking to people all over the place and looking at it.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

We do have quite a few scenarios now that we're playing with both in terms of a haircut that we receive and any recovery we may get on the back end.

[Marissa Lobo, Analyst at UBS]

Appreciate that. I was also hoping you could share your view on how you see the process timeline from here.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

The process timeline is going to go through the regulatory environment. That's still in question as well as that's getting studied. Let's go back for a second to the reserve. The majority of cases show no loss to Assured Guaranty on the bonds. Remember, we're the senior creditor position in those situations. We've worked out a liquidity plan that we believe really provides the space necessary for them to raise the necessary equity to be back in the market. As Ben said, the recovery will take many forms. It will also have to be valued as well. The majority of our cases, the strong majority of our cases, will have no reserve, no ultimate loss to Assured. We think the regulatory work itself out over the next 6-12 months.

[Marissa Lobo, Analyst at UBS]

Much appreciated. On another topic, I was hoping you could speak to the impact of tariffs. Do they mean—do they have any potential impacts to any of the credits that you wrap?

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

I think that's such a fluid situation. It's really hard to make an estimate at this point in time. I got to look to the market. If you saw it in the first quarter, municipal issuance was way, way up, which is reflective of the stronger credits going to the marketplace and the confidence that the market will still respond to it. We're taking a wait-and-see approach. Obviously, we continue to look at our international opportunities. We think this volatility and economic upheaval or questioning position will help our demand for our product in the long run. We're thinking that short-term, we've got opportunities if reports might be affected. We looked at our book in that area. I think we're looking at volatility and confusion as a good thing for Assured because that's when the market is the most receptive to our guarantee.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

I think if you look, it's very similar to COVID, where we optimistically saw the market dislocated in COVID, particularly in areas like airports, and we did very well running business during that time.

[Marissa Lobo, Analyst at UBS]

Got it. Thanks for your answers, and congrats on the strong quarter. That's it from me.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

Thank you.

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Thank you.

[Operator]

Thank you very much. Our next question comes from Tommy McJoynt with KBW. Your line is now open. Please go ahead.

[Tommy McJoynt, Analyst at KBW]

Hey, good morning, guys. A question on some of the commentary you put out there around the type of primary issuance that came through in the quarter seemingly to be overall a higher-rated credit. Does this change your outlook on what the normalized PVP to par looks like going forward, or should we not read too much into one quarter, one data point?

[Rob Bailenson, COO at Assured Guaranty Ltd]

No, that was this quarter, with the market volatility, a lot of the issuance was in the senior rated positions, AAA, AA, in the public finance market. Everyone was waiting and seeing what's going to happen with interest rates and the volatility with respect to the tariffs and all the noise. AAA and AA issuance came to market. We actually, as I said, significantly wrapped a significant portion of the AA market. It is business as usual. It does not change what we think is going to happen going forward for the year. In fact, we see a strong pipeline in public finance, both in the primary and the flow primary business, in our target markets in the A and BBB, as well as in our secondary market execution, as I talked about. We have a lot of names that are open.

[Rob Bailenson, COO at Assured Guaranty Ltd]

have made our process—we have increased our—we have significantly invested in our systems to help execute that market with our counterparties, giving them real-time information of what the price is going to be quickly and how our premium fits into that transaction, how people can save money. We see the opportunity in secondaries growing throughout the year and also in our flow business as markets have become less volatile.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

Yeah. Tommy, I'd say we actually take a lot of comfort in the first quarter and get a lot of confidence in what the year is going to look like. Strong credits came to the market in a volatile period, which you would expect that the stronger credits would still go out to issue. It shows the demand for financing that the municipalities still need. The market in general was up 20% or 19% par over par, and yet we were up 33% par over par. It shows the demand for the paper is there. There's issuance activity there. We expected stronger credit to the volatile market to go to the market because they're not really affected. We expect the rest of the credits will come to the market as the year falls out and things get more stable in the tariff situation and the global economic situation.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

We are very encouraged by the first quarter.

[Tommy McJoynt, Analyst at KBW]

Okay. Got it. Appreciate the color there. On some of those technology investments that you're making to potentially increase penetration in the secondary market, could you remind me, is there competition in that space? I know on the primary municipal side, there's really only one other competitor. What's the environment like competitively in the secondary side?

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

The same as the primary. We have one other competitor looking at secondary market executions. Remember, they look at a lot smaller end of the market than we do.

[Tommy McJoynt, Analyst at KBW]

Okay. Got it. And then this last question.

[Dominic Frederico, President and CEO at Assured Guaranty Ltd]

The first quarter reflects that demand. I'm sorry. I said the first quarter reflects that if you look at the demand for the two companies and the amount of par that was insured by the two companies, there was a significant difference in the first quarter versus other quarters. Why? Because the stronger credits came to the market, where only Assured could provide assistance there.

[Tommy McJoynt, Analyst at KBW]

Okay. Got it. This last question, the asset management segment, the bottom line there was a bit stronger than we were expected. Can you talk me through what happened there in the asset management side?

[Ben Rosenblum, CFO at Assured Guaranty Ltd]

Yeah. I think when you look at the asset management business, a lot of our earnings in the asset management business are back-end loaded. We book on a quarter lag. We are looking really at booking what Sound Point did in the fourth quarter. I think we are seeing a lot of that as Sound Point typically has a very strong end of the year. They syndicate some of the loans they have out there. They pick up some incentive fees. What we've observed is that they typically—it's a little bit back-end loaded. I think as you model through the rest of the year, I would always assume that our first quarter, which is really their fourth quarter, is probably going to be our best quarter in that space.

[Tommy McJoynt, Analyst at KBW]

Thanks.

[Operator]

This concludes the question and answer session. I would now like to turn the conference back over to our host, Robert Tucker, for closing remarks.

[Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications at Assured Guaranty Ltd]

Thank you, Operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much.

[Operator]

This concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.

Participants

Executives

• Dominic Frederico, President and CEO
• Robert Tucker, Senior Managing Director and Head of Investor Relations and Corporate Communications
• Rob Bailenson, COO
• Ben Rosenblum, CFO

Analysts

• Tommy McJoynt, Analyst at KBW
• Marissa Lobo, Analyst at UBS